Unlocking Working Capital : How Intuitive Design Can Reduce DSO and Optimize DPO

Introduction

Middle-market companies—defined as those with annual revenues between $10 million and $1 billion—play a vital role in the global economy. Middle-market companies are responsible for over 20% of commercial spending worldwide, highlighting their substantial role in the global economy. This segment is characterized by its dynamic growth and resilience, making it a critical driver of economic activity across various regions.

In the US, the middle market represents roughly 3% of all U.S. businesses but is responsible for roughly one-third of private sector GDP and employment. To put this into perspective, if the middle market were its own country, it would be the fifth-largest economy in the world.

Despite their contributions, these businesses often face unique challenges that hinder their growth and operational efficiency. While large corporations can leverage sophisticated financial tools and small businesses often find simpler solutions, middle-market companies are frequently caught in the middle—too big for small business solutions yet not large enough to justify the complexities and costs of enterprise-level systems.

This gap creates an opportunity for banks and fintechs to develop tailored, seamless payment experiences that unlock immense value for these businesses.

By adopting UX as a guiding philosophy, financial institutions can understand and address the specific needs of middle-market companies, building long-term partnerships and gaining a long-term competitive edge.

This article explores the challenges middle market companies face and how thoughtful UX in payment processes can drive efficiency, strategic decision-making, and growth.

DSO, DPO, and what they mean for Middle Market Firms

Understanding key metrics is essential for middle-market companies. Let's take a look at two key metrics:

• DSO: Days Sales Outstanding calculates the average time it takes for a company to collect payments after a sale, which is essential for maintaining liquidity and reducing reliance on external financing. Lowering DSO speeds up the cash conversion cycle.Example: SwiftParts Manufacturing (hypothetical company) sees a DSO improvement from 50 days to 40 days by introducing automated invoicing. This quicker cash collection means SwiftParts can more reliably cover monthly expenses, fund research for new part designs, and reduce dependency on short-term loans.
• DPO: Days Payable Outstanding measures how long a company takes to pay suppliers, influencing cash flow. A well-managed DPO can conserve cash while preserving good relationships with vendors.Example: By extending DPO from 35 to 50 days, SwiftParts can retain cash longer, giving them flexibility to order bulk raw materials when prices are favorable. However, SwiftParts ensures that these terms are acceptable to key suppliers to maintain strong partnerships.

For payment leaders, optimizing these metrics is critical. Middle-market companies often struggle with high DSO, leading to delays in receiving payments from customers.

This delay can choke their cash flow, making it difficult to meet their own payment obligations on time, which further affects DPO. Late payments to suppliers can strain relationships and result in missed opportunities for early payment discounts.

Unique Needs of Middle-Market Companies

Middle-market companies have distinct requirements that set them apart from small businesses and large corporations. They often seek:

1. Tailored Financial Solutions: These companies need financial products designed specifically for their size and complexity. They require flexibility and scalability that larger enterprises often overlook.
2. Access to Capital: Many middle-market firms struggle to secure financing options that align with their growth trajectories.
3. Efficiency in Processes: Streamlined operations are crucial for these businesses, as inefficiencies can significantly impact cash flow and overall productivity.
4. Strong Supplier Relationships: Maintaining good relationships with suppliers is essential, as late payments can jeopardize these connections and lead to increased costs.

How A UX-Driven Approach Unlocks Greater Working Capital

Financial institutions can unlock critical working capital for middle-market companies by addressing the frictions they face in payment processes, enhancing efficiency, and providing better visibility into their financial health. Here’s how thoughtful UX solutions can help address some of the biggest barriers these companies face:

Making Invoice Reconciliation Seamless
For many middle-market businesses, reconciling invoices with payments remains a cumbersome and error-laden process, resulting in payment delays that drain cash flow and stretch finance team resources.

With a UX-driven platform, financial institutions can streamline this process with automated invoice uploads, precise payment matching, and immediate discrepancy alerts. Such features drastically reduce Days Sales Outstanding (DSO), giving businesses faster access to cash and freeing them from time-consuming manual work.

Streamlining Payment Approvals
Manual payment approvals, often requiring numerous sign-offs and administrative checks, can slow down payments and create tension with suppliers who expect timely settlement.

A UX-driven solution that integrates mobile and real-time approval workflows allows finance teams to process payments without delay, even when on the move.

With fewer payment hurdles, companies can optimize their Days Payable Outstanding (DPO), preserving valuable supplier relationships and opening doors to early payment discounts.

Enhancing Real-time Cash Flow Visibility
Many finance leaders face significant friction in tracking daily cash flow due to legacy systems with delayed reporting. A UX-driven platform that provides real-time insights into cash inflows and outflows helps middle-market CFOs gain a clear, up-to-date picture of their cash position.

This transparency allows finance teams to make quicker, better-informed decisions on funding, investments, and expenses.

Creating Personalized, Integrated Financial Solutions
Middle-market companies often have disparate banking, insurance, and investment needs that are handled by multiple providers, resulting in complexity and missed synergies.

A unified, UX-optimized platform that combines these services under one interface enables CFOs to manage all financial aspects in one place.

With tailored insights and integrated service offerings, financial institutions can deliver a holistic view, enabling businesses to optimize financial strategies and reduce time spent on multi-provider coordination.

The Direct Impact of UX on Financial Metrics

Efficiency: A streamlined UX reduces time spent on repetitive tasks, freeing teams to focus on strategic initiatives that drive growth. This efficiency translates to faster invoice processing and payment approvals.

Accuracy: Automation minimizes human error. Accurate matching of invoices and payments ensures businesses are always aware of their financial position, aiding precise forecasting and decision-making.

Speed: Intuitive designs facilitate user adoption and ease of navigation. When users can navigate systems effortlessly, the entire payment process accelerates, from invoice generation to payment completion.

Takeaways for Payment Leaders

• Embrace UX : Recognize that a well-designed user experience is more than just aesthetics; it’s a philosophy that drives efficient, accurate, and revenue-boosting processes.
• Automate Where Possible: Leverage automation to minimize manual errors and allow your team to focus on strategic tasks. This is crucial in areas like invoice reconciliation and payment approvals.
• Prioritize Transparency: Ensure your UX design offers real-time visibility into essential financial data. Transparency leads to better decision-making and improved financial outcomes.

WDIR, your partner in B2B Payments UX Excellence

Leading financial institutions and innovative fintechs globally trust WDIR to create seamless, intuitive, and secure payment experiences. Get in touch today to start leveraging UX as your competitive advantage in this digital B2B payments era!