Toyota, one of the biggest names in the automotive industry, carries a massive $241 billion in debt. An amount typically seen with financial institutions rather than car manufacturers. So, why is this happening? The answer reveals how debt isn’t always a straightforward liability. In Toyota’s case, it’s tied to their global operations, competitive pressures, and surprisingly, their challenges in collecting payments on sales. This news explores how Toyota’s collection cycle impacts cash flow.
Toyota’s High Debt: An Unusual Situation
For Toyota, a significant portion of its debt isn’t just due to manufacturing costs but also financing. Many automakers provide financing options for customers to purchase vehicles, which adds to the debt on their books. But another contributor is Toyota’s slow collection process, or Days Sales Outstanding (DSO).
With a DSO of 113 days, Toyota takes almost four months to collect payments on sales, compared to an industry average of 60 days. This means Toyota has nearly double the typical waiting period to see cash from its sales. When a company’s DSO is this high, it puts added strain on cash flow, making it harder to cover expenses, pay suppliers, and invest in new ventures.
How AR Automation Helps Reduce DSO
For companies like Toyota facing cash flow pressures, Accounts Receivable automation offers an effective solution. AR automation streamlines the invoicing and payment collection process, making it faster and more accurate. Here are some benefits of AR automation that can significantly reduce DSO:
- Digital Invoicing: Automating the invoicing process enables invoices to be sent instantly, reducing the delay that comes with manual paperwork.
- Real-Time Payment Tracking: AR automation can provide real-time tracking of outstanding payments, allowing finance teams to take timely actions on overdue invoices.
- Automated Reminders: Multichannel automated reminders (email, SMS, or app notifications) encourage prompt payment and reduce the risk of invoices being overlooked.
- Predictive Analytics: With data-driven insights, companies can better forecast cash inflows and plan accordingly. Predictive analytics help identify patterns in payment behaviors, providing clearer expectations for when cash will be collected.
A recent study revealed that 62% of companies that adopted AR automation saw a reduction in DSO, freeing up more working capital and reducing the need to rely heavily on debt.
Why Finance Leaders Should Prioritize DSO Reduction
For Toyota and many other companies, high DSO can act as a cash flow drain. Companies that address this issue through AR automation can often turn DSO from a liability into an asset. Reducing DSO can lead to:
- Better Cash Flow: Faster collections mean more cash on hand to cover expenses and invest in growth.
- Reduced Debt Dependency: With improved cash flow, companies like Toyota may not need to take on as much debt to cover working capital gaps.
- Increased Profitability: By reducing debt and interest expenses, companies can improve profitability over time.
Is Your DSO Helping or Hurting Your Growth?
Toyota’s situation is a reminder that even the biggest companies can struggle with cash flow if their collections process is slow.
For finance leaders, the question is: Is your DSO a growth enabler or a cash flow drain? Addressing DSO through tools like AR automation can help companies maintain better cash flow, reduce reliance on debt, and open up opportunities for future growth.
