A/R reporting and KPI measurement is critical to every business. Companies should be aware of which metrics to focus their limited energies by first understanding which ones provide the best insight into A/R performance. While there are many KPIs worth tracking, the following list represents a few of the most important:
- Days Sales Outstanding (DSO) is a basic measurement for tracking the effectiveness of your invoice collection process. The longer it takes to collect payments, the higher your DSO.
- Average Days Delinquent (ADD) indicates how many days, on average, payments go unpaid. This is a basic measure of collection efficiency and A/R management health.
- Accounts Receivable Turnover Ratio (ART) is a metric determined by taking net credit sales and dividing them by your average accounts receivable balance. High ART scores suggest a strong ability to turn A/R into cash, which boosts cash flow, working capital, and liquidity.
- Collection Effectiveness Index (CEI) goes one step beyond the ART ratio to measure collection effectiveness in a specific period, often conducted annually.
- Days Deductions Outstanding (DDO) provides insight into the average time needed to collect revenue after a sale is done.
- Bad debts to sales ratio is typically measured as a percentage of revenues that were uncollected weighed against total sales in a time period.
While it’s vital to understand A/R metrics and their functions as an assessment tool, metrics need to be viewed in specific contexts if they’re to be of any use as actionable business insights. Thus, we have dedicated A/R reporting options that shine light on these metrics.
The Account Receivable Aging Report
One of the best tools for A/R assessment is the account receivable aging report – a foundational breakdown of a company’s receivables and how long open invoices have gone unpaid.
Aging reports are a critical part of cash flow planning as they allow AR teams to view breakdowns of invoices across pre-defined criteria. Typically, these reports are presented in 30-day, 60-day, and 90-day buckets, measuring the sum of all invoices currently outstanding in each timeframe.
This important A/R report offers insight into customer payment trends as well as the health of a company’s crediting and collection functions. By measuring aging reports regularly, companies stay on top of their outstanding invoices and may begin to see trends with particular customers or processes.
For example, while a single missed payment is no cause for concern, ongoing delinquency across the board likely indicates issues with your collections process or credit issuing policies. Aging reports provide a big-picture assessment of how efficiently invoices are being resolved and should be a foundational report for any A/R team.
Cash Flow Forecasting Reports
Cash flow forecasting is all about estimating future sales and expenses. This is vital information for broader business decisions surrounding loan management, managing bad debts, write-offs, and more. But at its most basic, a cash flow forecast helps teams understand how to position their companies to avoid cash shortfalls and capitalize on the funds they do have.
A transaction report delineates all A/R transactions (such as error reports or journal entries) undertaken in a given time period. It can also be used to assess a specific client’s activity and which transactions have occurred. As a basic auditing tool, transaction reports provide an important paper trail for A/R management over time.
Cash Reconciliation Reports
Think of cash reconciliation reports as a snapshot of a business’s cash position. By detailing payments received, cash applied, refunds, and existing lines of credit, this report offers a helpful overview of finances as well as helping users reconcile figures associated with different budgetary items.
Naturally, customer activity is a prime area for A/R reporting. Customer reports can be displayed in different ways, offering an overview of all customers in the system, measuring revenue intake by customer, viewing overviews of all transactions made by a given customer, and more. As a broad assessment tool, A/R teams will run customer reports frequently to gain more insight into client activities and expected behaviors.
Manage Regular Reporting With Ease
The above selections represent important A/R reports, but they’re by no means the only reports available. This is only the tip of the iceberg in terms of what strategic A/R teams can accomplish with the right tools behind them.
Most companies lean on automated A/R software to handle their reporting challenges these days. A/R software offers a variety of assessment and reporting tools that businesses can use to gain better insight into their key A/R metrics. And best of all, these reports can be set up to auto-populate data and be run on set schedules to ensure that teams are always working with the most up-to-date information possible.
Our team at Gaviit specializes in helping companies deploy A/R automation across their enterprise. If you’re ready to start taking charge of your A/R system, contact us at Gaviti to learn how we can help deploy automation in your business.