When it comes to staffing and cash flow, two metrics often get confused: Days to Pay (DTP) and Days Sales Outstanding (DSO). They sound alike, but they measure very different things. Understanding both is critical if you want to keep payroll running smoothly and your business growing.
What is Days to Pay (DTP)?
- Definition: How long it takes an individual client to pay you.
- Calculation: From the invoice date to the payment date.
- Example: You invoice a client on June 1. They pay June 30. Their DTP is 29 days.
- Why it matters: DTP reveals client payment habits. The longer it stretches, the more you’re effectively financing your client’s payroll.
What is Days Sales Outstanding (DSO)?
- Definition: The average time it takes your company to collect payments across all invoices and clients.
- Calculation: Accounts receivable ÷ average daily sales.
- Example: If receivables are $300,000 and your daily sales average $10,000, your DSO is 30 days.
- Why it matters: DSO gives you a big-picture view of how efficient your company is at turning invoices into cash.
Why the Difference Matters
- A client with a DTP of 40 days may not seem concerning—but if disputes, invoicing errors, or delays push your overall DSO above 50 days, you’re tying up far more cash than expected.
- DTP = client behavior.
- DSO = your full process. Invoicing speed, accuracy, collections follow-up, and client compliance all play a role.
- For staffing companies, the stakes are higher—payroll goes out weekly, while receivables often lag far behind. If both DTP and DSO stretch, you’ll need to cover the gap with working capital or outside funding—which costs money.
A Note on Averages
Both metrics should be weighted to avoid misleading results. For example: If four small clients pay quickly but two large clients consistently pay late, a simple average might look fine. But weighted properly, your DTP and DSO will show the true impact of those big invoices arriving late.
The Bottom Line
Tracking both DTP and DSO helps you see:
- When clients actually pay.
- How effectively your business converts invoices into cash.
If you want to grow your staffing company, cash flow can’t be left to chance. After more than 30 years of lending to staffing firms, I’ve seen firsthand how access to reliable cash flow is the difference between stagnation and growth. Don’t lose another client—or another opportunity—because you didn’t have the cash to fund payroll.
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