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By Nikolai Korniyuk
VP, Business Development
RigER Inc.
LinkedIn Profile
Following several years of liquidity worries, the imperative to decrease Days Sales Outstanding (DSO) for oilfield service (OFS) operators is more crucial than ever.
A company’s DSO is a key element in its cash conversion cycle. Given the vital importance of cash flow in running a business, it’s in every company’s best interest to collect its accounts receivable as quickly as possible. When DSO is low – typically 45 days and under is considered a low DSO number – the money can be put back into the business and put to good use in growing it. The reality is that no matter how certain a company is that a client will pay their outstanding invoices in the long run, the time value principle with regards to money means that any time spent waiting to be paid is money lost, and most companies cannot afford to lose at this point.
There are numerous factors that contribute to a company’s DSO number. Customer satisfaction, the efficiency of a collections department, and operational management systems are all major players in establishing a company’s ability to collect payments in a timely way and increase EBITDA margins while decreasing DSO.
As both price and volume of work are predicted to increase two fold this year, it is absolutely crucial that OFS company managers face the reality that they need to run their companies smarter than ever with the most limited access to growth capital they’ve seen in years. With so many companies still stuck in the loop of overworking a limited staff, being forced to staff up, and then having to let them go again, the question becomes: How can we do more with less? The answer, in every scenario, is digital.
You can’t make an informed decision without the information. And you can’t solve a problem when you get the information too late. Data driven decision making is a clear winner in this fight and having access to clear and accessible data is the only way to move in the right direction and ensure survival. Up to this point, companies have mainly taken to manually entering information into spreadsheets in order to track data. The process is incredibly time consuming and costly and still open to devastating amounts of human error. The result is potentially flawed data that is often delivered too late in the process to serve in delivering clear solutions.
As simple as it may sound, human error is still at the heart of so many inefficiencies in process. Illegibility, memory lapses, slow approval processes, and other factors all contribute to slowing operations. Digitizing these parts of a company’s activities minimizes the potential for these types of errors and allows management to pivot as needed.
Digital management systems, like RigER, are able to provide both online and offline consolidated real-time information related to job costing, daily P&Ls, accurate projections, DSO, DPO, inflation impacts, asset utilizations, employee turnover, QHSE, ESG, and all of the ways these impact the balance sheet. As the data is collected over time, the systems are able to make formulaic projections that allow companies to pivot towards solutions before the problems even arise.
Electronic invoicing and ticketing, for example, can shave weeks and even months off a company’s DSO. Digital tools empower employees to work more efficiently which benefits the company, but also staff morale and productivity, as well as employee satisfaction.
Other process optimizations afforded by digital management systems have a less direct but equally important impact on DSO and other contributing factors in a company’s bottom line. Centralized internal communication, for example, allows employees to connect with each other in real-time to avoid costly mistakes related to miscommunications. Additionally, a consolidated inventory of all products and their maintenance schedules and statuses allows employees to instantly access information rather than wasting hours, or even days, trying to reach the right person to get missing information. Human errors are inevitable, but can be minimized when updates can be entered instantly and digitally and uploaded to a database immediately accessible by all other employees.
Giving teams the digital tools they need to be successful is a win-win across the board.
Real-time digitization of tickets for immediate approval and invoicing is satisfying for everyone from the employee to the client to the manager who is approving the invoice, but it also expedites payment from the customer thus decreasing DSO over time.
This next chapter in the Energy Sector promises to delineate the companies who move towards new ways of working from those who stubbornly stick to antiquated systems. The speed at which the industry is shifting, growing, and changing will no longer allow for stragglers.
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