Essential Accounts Receivable KPIs to Keep Track of Pt. 2
Keeping track of your AR KPIs (Accounts Receivable Key Performance Indicators) is an essential step in the success of any business. It measures the performance of your accounts receivable processes and helps identify areas of improvement. By tracking your AR KPIs, you can understand how well you manage your customer payments and make changes to the processes and strategies you employ to collect payment.
By tracking your AR KPIs, you can identify areas of improvement in your accounts receivable process. For example, if customers take longer to pay their bills, this could signify that your payment terms should be shorter or that you need to be more aggressive in reminding customers about their payments.
If customers are paying their bills late, you may need to review your credit or adjust your payment terms. Tracking AR KPIs also allows you to determine which collection methods are most effective.
In part two of today’s article, let’s explore other AR KPIs you should keep track of. Here’s what you need to know:
Accounts Receivable Turnover Ratio (ART)
The Accounts Receivable Turnover Ratio is important because it indicates how quickly a company can collect on its sales. A high ratio is typically a sign of a well-run business that can collect on its sales quickly. A low ratio could indicate that the company is having difficulty collecting payments from its customers or needs to manage its accounts receivable properly.
Collection Effectiveness Index (CEI)
Collection Effectiveness Index (CEI) is a metric used to measure the effectiveness of a collection. It measures the efficiency of a collection process in terms of the total amount of money collected compared to the total amount of money due. It is used by businesses to assess their collection effectiveness and to focus their efforts in areas where their collection process could be performing better than it is.
Deduction Days Outstanding (DDO)
Deduction Days Outstanding (DDO) is an important metric that helps businesses understand their cash flow. It measures how long it takes customers to pay their invoices. By tracking this metric, businesses can evaluate the performance of their accounts receivable department and take action to improve cash flow and reduce outstanding balances.
Deduction Effectiveness Index (DEI)
Deduction Effectiveness Index (DEI) is an essential tool used to measure the effectiveness of a particular tax deduction. It measures the amount of tax dollars saved by taking a particular deduction. DEI is calculated by taking the amount of tax savings generated by a deduction and dividing it by the cost of the deduction.
Number of Invoicing Disputes
Invoicing disputes can be a major source of lost time and money for businesses, especially when they need to be managed properly. Keeping track of the number of invoicing disputes is an important part of running a successful business.
Businesses should also track the reasons for invoicing disputes. Common reasons include incorrect billing information, incomplete or incorrect invoices, or disputes about the amount due. By understanding the reasons for invoicing disputes, businesses can work to prevent them from occurring in the first place.
Percentage of High-Risk Accounts
As businesses become increasingly dependent on technology, the ability to measure the performance of automated processes is becoming more critical than ever. One of the key metrics for evaluating the effectiveness of automation is the percentage of high-risk accounts.
Keeping track of the percentage of high-risk accounts is an important part of any successful automation strategy. It allows businesses to identify and address potential issues before they become costly.
The Bottom Line
Tracking AR KPIs helps companies improve their business strategy and overall workflow by giving them a clear understanding of their progress and performance. This allows businesses to make necessary changes to improve their products or services. Additionally, tracking AR KPIs can help businesses identify areas where they need to focus their efforts to be more successful.
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