Access to data can be helpful to follow what you are in your accounts recievable process. Putting together Key Performance Indicators (KPIs) can help track performance and solve challenges, boiling down to the root causes. In this article, let’s look at five important KPIs to track in your Accounts Receivable process and how Accounts Receivable automation solutions can help your organisation perform better.
Days Sales Outstanding (DSO)
Days Sales Outstanding (DSO). Today, DSO is still one of the most commonly used KPIs for insight into performance by providing the average number of days it takes to turn receivables into cash. This is a way to measure the average number of days a company takes to collect payment for a sale and will indicate if your AR team needs help in this area.
Can you think of a KPI with a more significant impact on working capital?
Estimating the amount of cash you’re expected to receive is essential — adjusting collection efforts based on your company’s potential cash needs and providing team members with accurate data for cash forecasting.
Bad debt to sales ratio
The bad debt to sales ratio measures the number of credit sales that go uncollected in %, known as bad debt. A good, bad debt-to-sales ratio will be below 15%, while a bad debt-to-sales ratio will be above 25%. A high bad debt-to-sales ratio could mean you need to communicate with customers better, issue invoices correctly, or follow up on past-due accounts.
Accounts receivable turnover ratio (ART)
Your accounts receivable turnover ratio shows how fast your AR department collects payments and turns that money into cash. A high turnover rate is good as it means you’re collecting payments quickly, but a low turnover rate could indicate that your AR team needs to do more to collect payments.
Root Cause Analysis
Root-cause analysis (give stakeholders visibility on potential issues)
Getting figures isn’t always enough. If you really want to know why you’re getting paid late, you need to get to the root cause! For example: Why, despite great collection efforts, do your customers keep paying late? Do they receive invoices on time? Are all their billing requirements fulfilled?
Accounts Recievable Solutions – Helping your organisation to fulfil KPIs tracked
Monitoring KPIs of your AR performance level is crucial to any business. And sharing those key metrics should be at least as necessary to get the help and level of involvement you can expect to improve or maintain this global AR performance.
Best indicators can also be built up based on your needs according to your organisation. Esker provides dashboards, built-in KPIs and customisable reporting capabilities to help you get the visibility you need to control your AR performance.
Want to learn more about accounts receivable KPIs and dashboards? Contact Esker for a quick demo!