Clients Payments For TCS, Infosys, Tech M, Wipro Coming In Fast During Pandemic: But Why?
So good to be true but a few IT firms are witnessing their Day Sales outstanding (DSO) reduced dramatically during the Q2 which ended in September 2020.
Low DSO Is A Positive Sign
In simple words, DSO is the average number of days it takes a company to collect payments after a sale is completed.
A reduction in DSO is quite a healthy sign for any business as a low DSO value shows that it takes a company fewer days to collect its accounts receivable.
Basically, it is often referred to as days receivables or average collection period and a part of the cash conversion cycle for any firm.
It is one of the important metrics since it demonstrates a company’s cash flow.
What About Other Firms?
Other IT firms like Tech Mahindra reported a 15-quarter low DSO at 97.
HCL Tech’s reported at 79, including the unbilled amount which is seven days less compared to the 86 days the company has seen in the last three quarters, according to Prateek Aggarwal, CFO, HCL Tech.
For Infosys, the collections remained robust with DSO reducing by two days to 69, compared to the previous quarter, said Nilanjan Roy, the CFO, Infosys.
Why Would This Happen?
According to the IT executives, there could be a couple of reasons that have contributed to the gain of the lower DSOs.
During the start of the pandemic, in April, several IT companies reported pricing pressures, due to the extension of payments and discounts.
Now it has eased as customers’ priorities are changing and they are open to investing more in technology.
“Most of the larger customers are in a very reasonable financial position despite the pandemic. We have not experienced much of the extension of payment terms. Most of our customers are large Fortune 500 companies. They take care of all their partners,” said Manoj Bhat, the Chief Financial Officer, Tech Mahindra.
This has also contributed in terms of Tech Mahindra’s DSOs coming down, said Mr. Bhat.
He added, “I think, pretty much, across the board, you have seen that in the industry. During these times, anybody who had larger customers has seen an improvement in DSOs,”.