Summary
A manufacturer that sells through hundreds of dealers carries much of its working capital in their accounts. Days sales outstanding (DSO) comes down through four working habits: the credit position is visible when the order is booked, reminders follow a fixed rhythm, a disputed invoice is separated from the rest of the account, and every payment is matched on the day it lands. Alongside these, a business has financing levers, each with a cost: dealer finance through a bank, security deposits, and cash discounts for early payment. This article covers how to measure the problem, the habits and the levers, what the law gives a seller, and how the money owed should be provided for in the accounts.
01Measure it first
Days sales outstanding
DSO is the average number of days it takes to collect a rupee of credit sales.
DSO = money owed by customers ÷ credit sales for the period × days in the periodA business with ₹30 crore owed by dealers and ₹120 crore of credit sales in a year has a DSO of 30 ÷ 120 × 365, or about 91 days. Use the average of opening and closing balances where the year end is not typical, and calculate monthly as well as yearly.
What a day is worth
One day of credit sales is credit sales ÷ 365. At ₹120 crore a year that is about ₹33 lakh. Each day by which DSO falls releases roughly that much cash. If the cash reduces a working capital limit drawn at, say, 10 percent a year, every day of DSO is worth about ₹3.3 lakh a year in interest. Use your own bank's rate.
Ageing and collection effectiveness
DSO is an average and hides where the problem sits. Two further measures show it.
- Ageing by bucket
- money owed that is not yet due, 1 to 30 days overdue, 31 to 60, 61 to 90 and over 90.
- Collection effectiveness index (CEI)
- of the money that could have been collected in a period, the share that was.
CEI = (opening receivables + credit sales − closing receivables) ÷ (opening receivables + credit sales − closing current receivables) × 100Closing current receivables are those not yet due. A CEI close to 100 means almost everything that fell due was collected.
02Why dealer money comes in late
Orders booked past the limit
The salesperson meeting a dealer often cannot see the dealer's ledger. An order is booked, goods are dispatched and the overdue amount grows. By the time accounts puts the dealer on hold, the dealer has learned that credit terms bend.
Reminders that depend on who has time
Where the overdue list is a spreadsheet exported once a week, large amounts get a call from sales and smaller amounts wait. Dealers pay first the suppliers who follow up.
A small dispute holds the whole account
A dealer claims breakage on one consignment, a short supply on another or a scheme discount not yet credited, and holds back the whole payment. The dispute often surfaces only when someone calls about the overdue amount.
Payments that cannot be placed
Money arrives by bank transfer with no invoice reference, by cheque deposited at another branch, or as a round-figure UPI payment. Until it is matched, the dealer still shows as overdue and may receive reminders for money already paid.
03Four working habits
These practices apply whatever system a business uses.
Credit visible at the moment of the order
The person booking the order sees the dealer's outstanding amount, overdue amount and credit limit on the same screen. The business decides what happens when an order would cross the limit: a warning, a block, or a hold for the finance head. Each dealer's limit is reviewed every quarter against how that dealer has paid.
Reminders on a fixed rhythm
| When | Reminder |
|---|---|
| 3 days before the due date | Courteous note with the invoice and a payment link |
| On the due date | Note that the invoice is due today |
| 7 days overdue | Reminder listing all overdue invoices |
| 15 days overdue | Call from the sales owner, with the ledger in hand |
| 30 days overdue | Finance head's letter; new orders on hold |
Each message goes in the dealer's own language, names the invoices and amounts, and carries a link where the dealer can see the invoice and pay.
Disputes separated from the account
A claim is recorded against the invoice it concerns, with its reason, and passed to the person who settles claims. Reminders on that invoice pause while the rest of the account keeps moving. A claim register by reason (breakage, short supply, rate difference, scheme) shows which problems cost the most.
Payments matched the day they land
Every bank line is matched to an invoice, or to a dealer's account, on the day it arrives, so no dealer is chased for money already received.
04Financing levers and their cost
| Lever | How it works | What it costs the manufacturer |
|---|---|---|
| Dealer finance through a bank | A bank pays the manufacturer on dispatch and lends to the dealer against the invoice, under a programme the manufacturer arranges | Usually an interest subvention or a guarantee, depending on the programme |
| Security deposit or bank guarantee | The dealer places a deposit or guarantee against its credit limit | Interest paid on the deposit, if agreed; a weaker dealer network if terms are too strict |
| Cash discount for early payment | The dealer deducts a discount for paying within a short period | The discount itself, worked out as a yearly rate below |
| Shorter credit terms for slow payers | Terms reduced for dealers who pay late | Possible lost sales to competitors |
The cost of a cash discount. A discount of d percent for paying in a shorter period, instead of the full term, costs the manufacturer about d ÷ (100 − d) × 365 ÷ (full term − discount period) a year.
For 1 percent off for payment in 10 days instead of 45: 1 ÷ 99 × 365 ÷ 35 = about 10.5 percent a year. If the business borrows at less than that, the discount costs more than the borrowing it replaces.
GST on scheme discounts. A discount given after the sale reduces the taxable value only if it was agreed before or at the time of supply and is linked to specific invoices, under Section 15(3)(b) of the CGST Act, and the dealer reverses the matching input tax credit. The manufacturer issues a credit note under Section 34. Schemes that do not meet these conditions are settled as a financial credit note, without reducing GST. Settling scheme claims promptly removes one of the most common reasons dealers hold back payment.
05What the law gives a seller
Cheques that bounce
Under Section 138 of the Negotiable Instruments Act, 1881, a cheque must be presented within its validity period, which the Reserve Bank has set at three months from the date of the cheque. After dishonour, the seller must send a written demand within 30 days of hearing from the bank. If the drawer does not pay within 15 days of receiving the notice, Section 142 allows a complaint within one month after those 15 days end, in a court with jurisdiction where the payee's bank branch is. Under Section 143A, the court may order the drawer to pay interim compensation of up to 20 percent of the cheque amount.
If the seller is itself a micro or small enterprise
Under Sections 15 and 16 of the Micro, Small and Medium Enterprises Development Act, 2006, a buyer must pay a micro or small supplier within the agreed period, which cannot exceed 45 days from acceptance, or within 15 days where no period is agreed. Late payment carries compound interest at three times the bank rate notified by the Reserve Bank, with monthly rests, and claims can be filed on the MSME Samadhaan portal. This applies only to a seller registered on Udyam as micro or small. Since 1 April 2025, small means investment in plant and machinery up to ₹25 crore and turnover up to ₹100 crore. A manufacturer with ₹120 crore of sales, as in the example above, is a medium enterprise and is not covered. Traders registered on Udyam are not covered either.
06Providing for money that may not come in
Companies that follow Indian Accounting Standards recognise expected credit losses on trade receivables under Ind AS 109, usually through a provision matrix: a loss rate for each ageing bucket, based on the business's own history and adjusted for current conditions. Companies on the older Accounting Standards provide for doubtful debts on a prudent assessment. Either way, a rising over-90 bucket shows in the profit and loss before any dealer defaults, which makes ageing a board-level measure.
07How MatruOS runs it
Credit check on every sales order
Each customer can carry a credit limit and payment terms. In the sales settings the business chooses whether an order that crosses the limit is allowed, shows a warning or is blocked, and a customer can be put on hold. The customer's page shows the credit left.
Automatic reminders
Once the business connects its SMS sender or email, MatruOS sends a reminder 2 days before an invoice is due and again 2 and 10 days after, in wording the business sets. The business can change the timing or switch any reminder off.
Reminders ready to send by hand
The Payment reminders screen lists overdue invoices, each with a message matched to how late it is and a link where the dealer can see the invoice, with the business's bank details, or pay by UPI. A person sends each from the business's own WhatsApp or email.
One payment across many invoices
When a dealer pays a round amount, a person picks the dealer and MatruOS settles the dealer's invoices oldest due first, recording any balance as an advance.
Bank statements reconciled
An uploaded bank statement is reconciled automatically against payments already recorded. Lines that do not match are shown with a suggestion, for a person to confirm or post.
Claims settled by credit note
A breakage or short-supply claim is settled with a credit note against the invoice concerned, so the rest of the invoice stays due. The credit note brings the goods back into stock, so broken or lost goods are then written off as wastage. Value-only credit notes, for schemes or rate differences, are not yet available.
Money collected after a reminder, counted
The Home screen shows the money paid this month on invoices where an automatic reminder went out before the payment, counted from the business's own payment and message records. Reminders sent by hand from a person's own phone are not part of this figure, and the figure does not claim that the reminder caused the payment.
AI can make mistakes. Reminders use wording the business approves. Set collections and bookkeeping to Ask me, and keep the getting-paid loop on Ask, if every reminder, payment and bank posting the AI team prepares should wait for a person.
Sources
Checked 31 October 2026.
- Negotiable Instruments Act, 1881 (India Code): Sections 138, 142, 143A.
- Reserve Bank of India circular DBOD.AML.BC.No.47/14.01.001/2011-12, 4 November 2011: cheque validity of three months from 1 April 2012.
- Micro, Small and Medium Enterprises Development Act, 2006 (India Code): Sections 15 and 16.
- Ministry of MSME notification S.O. 1364(E), 21 March 2025: revised micro, small and medium thresholds from 1 April 2025.
- MSME Samadhaan portal
- Central Goods and Services Tax Act, 2017 (CBIC): Sections 15(3)(b) and 34.
- Ind AS 109, Financial Instruments, notified under the Companies (Indian Accounting Standards) Rules, 2015.