Accounts receivable are one of the most significant short-term assets affecting liquidity. It enables businesses to keep their customers happy while managing their working capital. Companies today have realized the significance of collecting cash on time for sustenance. That is why KPI reporting accounting services have gained immense popularity worldwide. The accounts receivable process uses several indicators to reflect its efficiency and effectiveness. It provides a comprehensive picture of AR performance and shows areas for improvement. 

Here, we have listed the five most essential accounts receivable KPI reporting accounting services every business must track:

Average days delinquent: Average days delinquent provides an ‘at a glance’ snapshot of the receivables performance of the firm. It is a highly valuable metric providing a quick and reliable view. It is easy to calculate and does not require complex data input. The formula only requires two dates:

The due date of the invoice

The date of invoice payment

It is available on the contract with the customer, so businesses do not have to delve deep anywhere. It does not involve biases or errors. It varies between 8 (high-performance firms) and 30 days. Above that indicates inefficiency.

Days sales Outstanding: It determines the average number of days taken to collect receivables. It enables monitoring cash flow at individual and cash flow levels. Businesses can identify the problems and payers who shoot up the DSO. A lower ratio is advisable. It influences the AR strategy of bookkeeping services. 

Percentage of current AR: DSO only considers receivables that have become a problem. However, the percentage of current AR takes the relative distribution of current and overdue receivables into account. It highlights high-value receivables about to be due. It enables firms to recover more cash faster than focusing on the oldest receivables. 

Collections effectiveness index: This index considers the effectiveness of the company in collecting overdue receivables within a specified time. It shows the percentage of collected payments against available receivables. KPI reporting accounting services should be equal to or above 80%. A lower portion reflects the changes in your customers’ health team efficiency, targeting specific accounts.

Operational cost per collection: This KPI provides a view beyond receivables collection. It tracks the execution capacity and enables firms to maximize collections at a lower cost. It indicates where automation can enhance the execution capacity and introduce efficiency. Firms can find quick fixes and compare with the competitors to see where they stand.