DSO and "Idle Money" — the Credit Terms You Grant Have a Price in Baht per Year, and Most Businesses Never Compute It

This article covers working-capital principles for decision support, not accounting or financial advice for any specific case.

Credit terms are a loan you extend to your customer — with you paying the interest

Every time you agree to 30-day terms, the financial reality is this: you deliver today, having already paid for materials and labour, and then lend the invoice amount to your customer for 30 days at zero interest. If they actually pay on day 70, that loan silently stretched to 70 days — while you borrowed on your overdraft to cover the gap and paid the interest yourself.

This is not a metaphor. Petersen & Rajan's classic study (1997) analyses trade credit as exactly that — real lending between firms — and finds small businesses routinely extend it even when their own cost of borrowing is higher. That interest spread is the price you pay to keep the customer, and it should be a computed number, not an invisible one.

The macro picture sharpens the point: PwC's Working Capital Study 2024/25 shows large corporates worldwide stretching their own payment days while small firms get squeezed from both sides — collecting slower, yet still paying suppliers on time. What fills that gap? The small firm's own overdraft.

First, measure: what is your DSO?

The standard gauge comes from Richards & Laughlin's Cash Conversion Cycle framework (1980):

DSO = outstanding receivables ÷ (credit sales in window ÷ days in window)

Use a trailing 90-day window, then read the result against the terms you grant:

• Terms 30 · DSO 38 → under control (natural paperwork and billing-round lag)
• Terms 30 · DSO 65 → customers are taking, on average, double the agreed credit — and you receive nothing for the extra

The detail most templates miss in Thailand: the base must be expected cash. Corporate customers withhold tax (3% of the pre-VAT base for services) and pay net; if your numerator uses face values while money arrives net, the metric drifts systematically.

Price the idle money in baht: the number that changes behaviour

DSO is a time ratio — nobody feels it. Convert it to baht and everyone does:

idle-money interest per invoice ≈ outstanding × overdraft rate p.a. × days outstanding ÷ 365

An invoice of 100,000 baht, at 8% overdraft, 45 days overdue = ~986 baht of idle money. Carry an average 800,000 baht of overdue balances all year and that is ~64,000 baht per year of interest you pay on your customers' behalf — enough to fund a part-time collections assistant, currently evaporating quietly.

It is an estimate for decision-making, not a ledger entry. Its power is that it prices a single chasing phone call in baht — and attaches a running cost to every customer's credit terms.

One system: measure DSO · see the idle money · chase on a ladder

The three tools work together: the aging table shows who owes and for how long → DSO shows whether the whole business is collecting faster or slower → idle-money interest shows what the delay costs. All that remains is chasing consistently.

The B2B Debtor Register & Collection System puts all of it in one Excel file: DSO against a target you set, with a warning light · a per-invoice idle-money column at your own overdraft rate · expected cash computed net of Thai withholding tax on the pre-VAT base, correct at the source · and a chase-today screen ranked every morning — plus a 26-case live self-test sheet that proves the formulas in front of you. One purchase includes both the Thai and English (Thailand) editions.

→ See the product