Looking to improve your accounts receivable performance? Metrics are a great way to track progress. Knowing which key performance indicators (KPIs) to monitor can help you maximize collections and minimize open accounts receivable.
In this blog, we’ll discuss what KPIs are, why minimizing open AR is important, and what debt collection metrics you can track to inform and improve your AR strategy.
What Is a KPI?
Key performance indicators (KPIs) are quantifiable measures that help businesses track and evaluate their performance. KPIs are often used to evaluate progress towards a specific goal. When it comes to accounts receivable, KPIs can help your team track collections and ensure that invoices are paid on time.
By monitoring KPIs, businesses can identify areas for improvement and adjust their strategies accordingly.
Why Is Minimizing Open AR Important?
Open accounts receivable can be detrimental to a business’s cash flow. When invoices are not paid on time, it can put a strain on the business’s ability to meet its financial obligations, pay its employees, or invest in new opportunities.
Therefore, minimizing open AR is essential to maintain the cash flow of your business and ensure you have the resources needed to grow and succeed.
Accounts Receivable Performance Metrics You Need to Track
There are a variety of accounts receivable metrics businesses can use to evaluate their performance. Here are some of the most important metrics to track:
Days Sales Outstanding (DSO)
DSO is a measure of the average number of days it takes a business to collect payment on its invoices. A high DSO indicates that customers are taking longer to pay their bills, which can lead to cash flow problems for the business. By tracking DSO, companies can identify trends and take steps to improve their collections processes.
Return on Payment (RPC) Rates
RPC rates are the percentage of payments returned to the business due to insufficient funds, invalid payment methods, or other issues. A high RPC rate can indicate that the business needs to improve their payment methods and collections procedures.
Promise to Pay (PTP)
PTP is the percentage of customers who promise to pay their invoices but fail to do so. A high PTP rate might mean the business’s methods of collection are not effective.
Struggling With High PTP Rates?
Return Rates
Return rates are the percentage of invoices returned to the business for various reasons, such as incorrect billing information or discrepancies in the invoice. High return rates are a sign the business needs to improve its billing processes and make sure invoices are accurate and complete.
Collection Effective Index (CEI)
CEI measures the effectiveness of the business’s collections processes. It takes into account a variety of factors, including DSO, RPC rates, PTP, PFA, and return rates. A high CEI indicates that the business’s collections processes are effective, while a low CEI indicates that they need to improve.
Why Tracking Accounts Receivable Metrics Is Important
Tracking accounts receivable metrics is important for several reasons.
First, it can help you identify areas of improvement. By monitoring metrics like DSO and RPC rates, you can identify which customers are taking longer to pay their bills or having payment issues. This information can be used to follow up with those customers and develop more effective collections procedures.
Second, tracking accounts receivable metrics can help you identify trends and patterns in your collections processes. For example, if you notice that return rates are consistently high, you may need to take steps to improve billing processes or address issues with invoices.
Finally, tracking metrics can help your businesses make more informed decisions about its collections strategies. By analyzing metrics over time, you can identify which strategies are most effective and make adjustments as needed.
Simplify KPIs for Your Accounts Receivable
Tracking key accounts receivable metrics is crucial to ensuring proper collections and minimizing open AR. By monitoring metrics like DSO, RPC rates, PTP, PFA, return rates, and CEI, you’ll gain valuable insights into your collections processes and identify areas for improvement. However, even with the best metrics and collections procedures in place, businesses still struggle to secure their outstanding debts.
That’s where Rapid Collections comes in. As a global commercial collections firm, we have the expertise to help businesses of all sizes and industries improve their accounts receivable performance and recover their outstanding debts. Contact us today to learn more about how we can optimize your collections strategy and improve your bottom line.
