Working capital is very important to a business and accounts receivable goals can help make sure your business has the cashflow it needs. There are many strategies that can be used to help increase your working capital. This can include improved process and technology, like OnePosting’s AR solution. It can be difficult to know how the finance team is progressing without setting and measuring accounts receivable goals. Here are a few accounts receivable goals that your organization could be using.
Days Sales Outstanding: Days sales outstanding (DSO) is a measure of the average number of days that it takes a company to collect payment after a sale has been made. Reducing your DSO is one of the most significant goals in improving an organization’s working capital. DSO can be determined on a monthly, quarterly, or annual basis. It can be calculated by dividing the amount of accounts receivable during a given period by the total value of credit sales during the same period and multiplying the result by the number of days in the period measured.
Bad Debt Per Sales: Bad debts can happen for several reasons. Your customers may not have the money to pay or maybe they are not happy with your solution and refuse to pay. Bad debts can cripple a business. This often shows what the symptom is, but not the cure. It could be that your credit policies are not stringent enough or that you customer support is not addressing customer issues.
AR cost per sales dollar: This is the cost of the AR department as a percentage of your sales. People and the technology costs can be included in the AR cost per sales dollar. This is a good measure as you look to scale and evaluate new processes and technology options.
Invoice exceptions or changes: Invoice exceptions and changes can impact the DSO. This could mean that an invoice needs to be changed due to an error or maybe the sales team is asking for some terms to be changed. Both of these examples can negatively impact the AR team. An error with an invoice can mean that the clock starts again with a customer. This could turn an invoice with a 45 day term to a 90 day term. Not only does it impact the working capital, but it is also not an efficient way for the AR team to deal with invoices.
If you would like to understand how OnePosting can help your organization make their accounts receivables goals, book a meeting.