How to Track Accounts Receivable KPIs in Real-Time

Introduction

Accounts Receivable KPIs (Key Performance Indicators) measure the performance of companies in terms of their debt collection and management processes. They provide important insights into the effectiveness of a company’s practices and its overall financial health.

Tracking Accounts Receivable KPIs in real-time is essential for businesses to manage their cashflow and make decisions on how to optimally allocate their resources. Knowing the numbers behind how business decisions are impacting performance is key to understanding what works, what doesn’t, and how to maximize profitability.

Why tracking Accounts Receivable KPIs is important:

• Improve decision making – By tracking Accounts Receivable KPIs, businesses can make smarter, faster decisions about how to best utilize their resources.
• Understand cashflow – Tracking Accounts Receivable KPIs allows businesses to understand their cashflow in real-time, including how much is being collected on time and how much remains outstanding.
• Identify issues – Being able to track Accounts Receivable KPIs in real-time allows businesses to identify issues as they arise and take corrective action quickly.

Understand Current Revenue and Accounts Receivable

Tracking accounts receivable KPIs in real-time is essential for any business to gain a comprehensive understanding of their current financial health and make more informed decisions. To effectively measure and monitor accounts receivable KPIs, businesses must first have a clear understanding of their current revenue and accounts receivable.

Knowing individual customer invoices

Having an understanding of individual customer invoices is an invaluable tool to accurately track accounts receivable KPIs. By accurately assessing the outstanding amount receivable from each customer, businesses can understand their current revenue in real-time. It is important to have a clear picture of who owes what and when the payment is due in order to accurately track accounts receivable KPIs.

Utilizing reports and dashboards

Businesses can also use reports and dashboards to track accounts receivable KPIs in real-time. Reports and dashboards provide businesses with an up-to-date snapshot of the accounts receivable and current revenue. Reports and dashboards are a great way to quickly and easily assess the financial health of the business and provide access to insights that can help inform strategic decisions.

• Reports and dashboards can help businesses identify any potential issues or opportunities for improvement.
• Reports and dashboards can provide insights into customer’s payment patterns, enabling businesses to make better decisions about issuing payment terms and extending credit.
• Reports and dashboards can help identify any discrepancies and provide businesses with the most up-to-date information regarding accounts receivable.

Automating Reporting and Collections

Speed, accuracy and improved customer service are benefits realized by automating accounts receivable processes. Automation not only reduces costs by streamlining processes, but also makes it possible to access real-time Key Performance Indicator (KPI) data to reveal payment and collection trends and assess partner performance.

Selecting the Right Software

When selecting software for automating accounts receivable processes, it is important to choose a platform that offers flexibility to support a company’s specific needs. The software should provide the ability to accurately track and measure KPIs, including days sales outstanding (DSO), bad debt and collection effectiveness. It should also support customers’ preferred payment method and provide access to payment and collection performance reports.

Implementing Automation in Collections

When implementing automation in accounts receivable collections, it is important to strike the right balance between people and technology. Automation should be designed to support human input and decision making by providing business rules to automate processes and ensure accuracy in workflow. Human resources are responsible for understanding current customer payment behavior in order to identify when automated processes are beneficial and when manual processes are more appropriate.

Tools should be provided to automatically capture customer activity, such as overdue invoices, transactions and emails for improving operational efficiency. Automated emails can also be used to communicate payment reminders, ‘thank you’ emails for successful payments and other messages. Automated reporting provides transparency into payment and collection trends and allows companies to analyze KPIs to identify areas for improvement.

Keeping Track of Aging Accounts

Accounts receivable (AR) data is a company’s bread and butter for understanding financial trends and performance. This data needs to be monitored constantly in order to best manage cash flow. To do this, it’s important to understand and track key performance indicators (KPIs). Here’s what to consider when it comes to keeping track of aging AR accounts.

Understanding Aging Trends

Aging trends tell you how much time has passed since specific accounts receivable (AR) invoices have been issued. As time passes, aging trends expose customers who are unable or unwilling to pay their debts. To track this, enter all invoices into your accounts receivable tracking system. These invoices should indicate when they were issued, when they’re due, and the amount of money that is owed.

In addition to tracking invoices, you should also watch for patterns in payment behavior. Keep an eye on how quickly your customers are normally paying invoices. An aging report can help you to quickly determine which accounts are falling behind in paying their invoices. These reports can be run weekly or monthly, depending on your data needs.

Making Sure All Accounts are Categorized Properly

For the most accurate aging trends, all accounts should be categorized properly. Many accounts receivable tracking systems can be customized to categorize debtors by company and by individual. This will help you to identify high-risk accounts quickly and to create customized strategies for managing them.

You should also track the accounts that are making regular, timely payments. This will help you to understand your customers’ spending behaviors and to create further strategies for managing your debts. Your reports should indicate the amount of regular and timely payments, which you can use to ensure you have a steady stream of income.

By tracking accounts receivable KPIs in real-time, you can stay on top of your financial trends. You’ll be able to identify high-risk accounts quickly and to make sure all accounts are categorized properly for the most accurate reports. Tracking AR data can help you to optimize cash flow and to manage your debts more effectively.

Monitoring Days Sales Outstanding (DSO)

days sales outstanding (DSO) is an important KPI to track when measuring Accounts Receivable performance. It is a metric used to measure the average number of days it takes for a business to collect owed payments from its customers. Having a real-time understanding of DSO is key to managing customer relationships and optimizing cash flow.

Calculating DSO

Calculating DSO is fairly simple and requires basic knowledge of Accounts Receivable principles. To calculate DSO, you need to first calculate the average Accounts Receivable balance for the period. You do this by adding up the company’s Accounts Receivable balance at the beginning and end of the period and dividing by two. Next, you add up all the credit sales during the period, and divide by the average Accounts Receivable balance. That number is the number of days it takes, on average, to collect all the credit sales during the period.

Optimizing DSO

Once you have calculated the DSO figure, you can use the metric to ensure the Accounts Receivable process is running smoothly. There are several strategies to optimize DSO, such as introducing a customer portal for fast payments, improving internal processes, and tightening up credit policies, to name a few.

• Introduce a customer portal for fast payments: Give customers the ability to securely pay their invoices online, rather than mailing checks or relying on other manual payment methods that delay receipt of funds.
• Improve internal processes: Streamline the Accounts Receivable process by automating activities such as customer onboarding, invoice generation, and customer communications.
• Tighten up credit policies: Evaluate the credit policies to ensure they are appropriate for your customer base. Make sure customers are not taking on more than they can handle, and that delayed payments are being addressed quickly.

Looking for Improvements

In order to ensure that Accounts Receivable is performing up to expectations, it is important to look for possible improvements both in terms of its structure and the timeliness of payments. An effective way of doing this is to create multi-dimensional views of your Accounts Receivable information, utilizing different angles for comparison. This could include comparing invoices by customer, by product, by outlet, and other variations.

Utilizing Multi-Dimensional Views

Having a multi-dimensional view of your Accounts Receivable allows you to identify trends and look for process improvements from different points of view. Knowing which customers tend to pay late, which products have more unpaid invoices, or which outlets have the most positive payment behavior are some examples of the insights you can gain. It gives you a better understanding of where the main issues lie, and what solutions can be explored to make payments smoother.

Looking for Patterns in Accounts Receivable

By tracking Accounts Receivable using key performance indicators (KPIs), you can identify trends and patterns in payments. These patterns can reveal important information about customer behavior, and help you better anticipate issues associated with late payments. Additionally, looking for patterns can help you identify invoice errors, and quickly make the necessary corrections.

If you want to improve your Accounts Receivable process and performance, then utilizing multi-dimensional views and looking for patterns can be incredibly useful. This valuable information can be used to get a better handle on customer payment behavior and invoice accuracy, and to optimize processes for faster and more efficient payments.

Conclusion

Tracking accounts receivable KPIs in real-time can have a number of positive benefits for your business. Understanding and analyzing current accounts receivable data gives you deeper insight into the overall financial health of your business. This data can help you make informed decisions, set realistic payment expectations and plan for the future.

The Benefits of Real-Time Tracking of Accounts Receivable KPIs

• Helps you better understand and identify sales opportunities
• Provides more accurate forecasts of future cash flows
• Assists in the prevention of bad debt
• Helps you quickly identify and take action on any emerging issues

Taking Action on the Data Collected

Once you identify and analyze your accounts receivable KPIs, you can use this data to inform better decision making. With a comprehensive view of your current receivables, you can be more competitive with new customer quoting, set more realistic payment expectations, and better allocate resources to ensure timely collections.

Understanding and tracking your accounts receivable KPIs in real time can help you make sound business decisions, increase cash flow, and ensure that your business is running smoothly.