In our last emailer, we mentioned that key performance indicators, or KPIs, are a valuable tool for measuring the health of your business. Let’s look at two specific KPIs that can help you
monitor your Accounts Receivable (AR).
It’s especially important to pay close attention to AR right now, as some customers may slow
their payment cycles as they grow fearful of a recession. One of the most important measures
of AR collections is Days Sales Outstanding (DSO), which tracks the average time it takes to get paid after sending an invoice.
In general, a DSO score of 45 or less is considered good. Note that this can vary from one industry to another, and that a DSO of 45 requires some interpretation – it does not mean that each of your customers pay in an average of 45 days.
There are other metrics to consider, including Bad Debt to Sales Ratio. The most important
thing is that you’re monitoring your AP KPI regularly and taking action when they get outside an acceptable range.
We can help you decide which KPI best fits your specific situation – just email us at
info@sbsaccountants.com.