These indicators help manage working capital more efficiently, reduce the risk of bad debt, and ultimately underpin the company's financial health and ability to reinvest in growth opportunities.
KPI |
Definition
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Business Insights [?]
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Measurement Approach
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Standard Formula
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Accounts Receivable Carry Cost More Details |
The cost of carrying accounts receivable, including interest costs, opportunity costs, and administrative expenses.
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Helps in understanding the financial impact of carrying receivables and in recognizing ways to minimize these costs.
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Includes factors such as interest expenses, opportunity costs, and administrative costs related to maintaining accounts receivable.
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(Total Interest Expense + Opportunity Costs + Administrative Costs) / Average Accounts Receivable
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- Increasing accounts receivable carry cost may indicate higher interest rates or longer collection periods.
- Decreasing carry costs could signal improved credit management or faster invoice processing.
- Are there specific customers or industries that consistently have higher carry costs?
- How does our carry cost compare to industry averages or benchmarks?
- Implement stricter credit policies to reduce the risk of late payments and interest costs.
- Invest in automated invoicing and payment processing systems to speed up collections.
- Regularly review and renegotiate terms with suppliers to optimize payment schedules and reduce opportunity costs.
Visualization Suggestions [?]
- Line charts showing the trend of carry costs over time.
- Pie charts comparing carry costs by customer or industry segment.
- High carry costs can impact cash flow and profitability.
- Excessive carry costs may indicate inefficiencies in credit management or collection processes.
- Accounting software with accounts receivable modules for tracking and analyzing carry costs.
- Customer relationship management (CRM) systems to monitor customer payment behavior and credit risk.
- Integrate accounts receivable data with financial reporting systems to provide a comprehensive view of working capital management.
- Link with inventory management systems to align credit terms with inventory turnover and reduce carrying costs.
- Reducing carry costs can improve overall working capital and financial stability.
- However, overly strict credit policies may impact customer relationships and sales.
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Accounts Receivable Concentration Risk More Details |
The risk associated with a high concentration of total receivables from a few customers, indicating dependency and potential credit risk.
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Highlights dependency on key customers and potential risk exposure if those customers fail to pay.
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Assesses the percentage of total accounts receivable from a small number of customers.
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Receivables from Top Customers / Total Receivables
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- An increasing concentration of total receivables from a few customers may indicate growing dependency and potential credit risk.
- A decreasing concentration could signal a more diversified customer base and reduced credit risk.
- Are there specific customers or industries that account for a significant portion of our total receivables?
- How does our concentration risk compare with industry benchmarks or historical data?
- Diversify the customer base to reduce dependency on a few key accounts.
- Implement stricter credit policies for high-concentration customers to mitigate potential risk.
- Regularly review and assess credit limits for customers with high concentration levels.
Visualization Suggestions [?]
- Pie charts showing the percentage of receivables from top customers.
- Trend lines depicting changes in concentration risk over time.
- High concentration risk can lead to significant financial losses if key customers default.
- Dependence on a few customers may limit the ability to explore new business opportunities.
- Customer relationship management (CRM) software to track and analyze customer-specific receivables data.
- Credit risk management platforms to assess and monitor concentration risk levels.
- Integrate concentration risk analysis with credit management systems to make informed decisions on credit limits and terms.
- Link concentration risk data with sales forecasting to anticipate potential impacts on cash flow.
- Reducing concentration risk may require additional resources for sales and marketing to attract new customers.
- Increased diversification can lead to improved financial stability and reduced vulnerability to customer defaults.
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Accounts Receivable Growth Rate More Details |
The growth rate of accounts receivable over a period, which can signal changes in sales patterns or credit terms.
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Indicates trends in credit sales and potential changes in cash flow.
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Measures the percentage increase or decrease in total accounts receivable over a period.
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(Current Period Accounts Receivable - Previous Period Accounts Receivable) / Previous Period Accounts Receivable * 100
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- Increasing accounts receivable growth rate may indicate relaxed credit policies or a slowdown in collections.
- Decreasing growth rate could signal improved credit management or a decline in sales.
- Are there specific customers or segments driving the increase in accounts receivable?
- How does our accounts receivable growth rate compare with industry benchmarks or historical data?
- Implement stricter credit policies and more proactive collections processes.
- Offer discounts for early payment to incentivize quicker receivables turnover.
- Regularly review and adjust credit terms based on customer creditworthiness and payment history.
Visualization Suggestions [?]
- Line charts showing the trend of accounts receivable growth rate over time.
- Pareto charts to identify the most significant contributors to the growth in accounts receivable.
- High accounts receivable growth rate can strain cash flow and increase the risk of bad debt.
- Continued growth in accounts receivable may indicate a need for tighter credit controls to avoid potential losses.
- Accounting software with robust accounts receivable modules for tracking and managing receivables.
- Customer relationship management (CRM) systems to monitor customer payment behavior and history.
- Integrate accounts receivable data with financial forecasting systems to predict future cash flow and liquidity.
- Link accounts receivable growth rate with sales performance metrics to identify potential correlations.
- Reducing accounts receivable growth rate can improve cash flow and reduce reliance on external financing.
- However, overly strict credit policies may impact sales volume and customer satisfaction.
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CORE BENEFITS
- 50 KPIs under Accounts Receivable
- 15,468 total KPIs (and growing)
- 328 total KPI groups
- 75 industry-specific KPI groups
- 12 attributes per KPI
- Full access (no viewing limits or restrictions)
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Accounts Receivable Staff Productivity More Details |
The productivity of accounts receivable staff measured by the amount of receivable managed per employee.
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Reflects the efficiency of the accounts receivable team, useful for staffing and process improvement decisions.
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Considers the amount of accounts receivable processed per staff member.
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Total Amount of Accounts Receivable Processed / Number of AR Staff
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- An increasing amount of receivables managed per employee may indicate improved efficiency in collections processes or a growing customer base.
- A decreasing amount could signal issues with collections, customer creditworthiness, or a reduction in sales volume.
- Are there specific customers or accounts that consistently have higher outstanding balances?
- How does the amount of receivable managed per employee compare to industry benchmarks or historical performance?
- Implement automated invoicing and payment reminder systems to streamline collections processes.
- Provide regular training and support for accounts receivable staff to improve their efficiency and effectiveness.
- Review credit policies and customer payment terms to ensure they align with the organization's cash flow needs.
Visualization Suggestions [?]
- Line charts showing the trend of receivables managed per employee over time.
- Stacked bar charts comparing the amount of receivable managed per employee by different departments or customer segments.
- Low productivity of accounts receivable staff can lead to cash flow issues and increased bad debt expenses.
- High productivity may indicate aggressive collections tactics that could damage customer relationships.
- Accounts receivable management software like Anytime Collect or YayPay to automate and streamline collections processes.
- Customer relationship management (CRM) systems to track customer interactions and payment history for better collections management.
- Integrate accounts receivable productivity data with financial reporting systems to provide a comprehensive view of cash flow and working capital management.
- Link with sales and customer service platforms to ensure a coordinated approach to customer credit and collections.
- Improving accounts receivable staff productivity can positively impact cash flow and working capital management.
- However, overly aggressive collections tactics can negatively impact customer satisfaction and retention.
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Accounts Receivable to Sales Ratio More Details |
A ratio that compares the accounts receivable amount to total sales, indicating the proportion of sales that have not yet been collected as cash.
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Provides insight into the proportion of sales not yet collected in cash, indicating potential liquidity issues.
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Compares total accounts receivable to total net credit sales.
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Total Accounts Receivable / Total Net Credit Sales
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- An increasing accounts receivable to sales ratio may indicate slower collections or credit issues with customers.
- A decreasing ratio could signal improved collection processes or tighter credit policies.
- Are there specific customers or regions with consistently high accounts receivable balances?
- How does our accounts receivable to sales ratio compare with industry averages or historical data?
- Implement stricter credit policies to reduce the risk of overdue accounts.
- Offer discounts for early payment to incentivize quicker collections.
- Regularly review and follow up on outstanding invoices to expedite collections.
Visualization Suggestions [?]
- Line charts showing the trend of accounts receivable to sales ratio over time.
- Pie charts to visualize the distribution of accounts receivable by customer or region.
- High accounts receivable to sales ratio can strain cash flow and working capital.
- Persistent high ratios may indicate potential bad debt or credit risk issues.
- Accounting software with built-in accounts receivable management features such as QuickBooks or Xero.
- Customer relationship management (CRM) systems to track and manage customer payment behavior.
- Integrate accounts receivable data with financial reporting systems for comprehensive performance analysis.
- Link accounts receivable management with sales and customer service platforms to streamline collections and customer communication.
- Improving the accounts receivable to sales ratio can positively impact cash flow and liquidity.
- However, overly aggressive collection practices may strain customer relationships and affect future sales.
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Aging of Accounts Receivable More Details |
The distribution of accounts receivable by the length of time they have been outstanding. A lower percentage of aging accounts is generally better, as it indicates that the AR department is effectively managing the collection process and minimizing the risk of default.
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Identifies collections issues and the risk of non-payment, helping prioritize collection efforts.
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Analyzes accounts receivable by age, typically categorized by 30-day increments.
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Sum of Receivables in Each Age Category (e.g., 0-30 days, 31-60 days, etc.)
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- An increasing trend in the aging of accounts receivable can indicate a loosening of credit terms or issues with the collections process, potentially impacting cash flow.
- A decreasing trend suggests improvements in the collections process or stricter credit policies, leading to better cash flow management.
- Seasonal fluctuations may affect the aging of accounts receivable, with certain times of the year showing higher levels due to industry-specific sales cycles.
- What percentage of our accounts receivable is overdue, and how does this compare to previous periods?
- Are there specific customers or segments contributing disproportionately to older receivables?
- What are the current credit policies, and how effectively are they being enforced?
- Implement or refine a credit scoring system for customers to better assess risk before extending credit.
- Regularly review and follow up on outstanding invoices, prioritizing older debts for immediate action.
- Offer multiple payment options and incentives for early payment to encourage quicker settlements.
Visualization Suggestions [?]
- Ageing summary reports using bar charts to visualize the distribution of receivables across different time buckets.
- Line graphs to track the trend of average days outstanding (ADO) over time, highlighting improvements or deteriorations.
- Pie charts to represent the proportion of total receivables that are current versus overdue.
- High levels of aged receivables can tie up working capital, limiting the funds available for operations and growth.
- Older receivables have a higher risk of becoming bad debts, directly impacting the bottom line.
- Excessive focus on aggressive collections might strain customer relationships, affecting future business.
- Accounts receivable automation software like FreshBooks or QuickBooks to streamline invoicing and follow-ups.
- Customer relationship management (CRM) systems to maintain detailed records of customer interactions and payment histories.
- Data analytics platforms for deeper insights into payment patterns and to identify potential risks early.
- Integrate accounts receivable data with CRM systems to provide sales and customer service teams with up-to-date information on customer accounts.
- Link financial reporting tools with accounts receivable software to generate real-time reports and dashboards for better decision-making.
- Improving the aging of accounts receivable can significantly enhance cash flow, allowing for reinvestment in growth opportunities or debt reduction.
- Changes in credit policies to improve this KPI may initially reduce sales volumes as credit terms tighten, but can lead to a healthier customer base and financial position in the long term.
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In selecting the most appropriate Accounts Receivable KPIs from our KPI Library for your organizational situation, keep in mind the following guiding principles:
It is also important to remember that the only constant is change—strategies evolve, markets experience disruptions, and organizational environments also change over time. Thus, in an ever-evolving business landscape, what was relevant yesterday may not be today, and this principle applies directly to KPIs. We should follow these guiding principles to ensure our KPIs are maintained properly:
By systematically reviewing and adjusting our Accounts Receivable KPIs, we can ensure that your organization's decision-making is always supported by the most relevant and actionable data, keeping the organization agile and aligned with its evolving strategic objectives.