The Top 9 Accounts Receivable KPIs You Should Be Tracking (2024)

Tracking the performance of your accounts receivable helps your financial organization understand what’s working well and what needs improvement. Monitoring your accounting KPIs is essential, as accounts receivable KPIs play a significant role in enhancing business performance.

However, there are dozens of accounts receivable KPIs. How should you choose which to track? The most relevant operational KPIs will vary from company to company, and they may also change over time, along with your business goals. A good rule of thumb is to focus on the metrics that bring performance into focus.

What are Accounts Receivable KPIs?

Accounts Receivable KPIs (Key Performance Indicators) are specific metrics used to measure the efficiency and effectiveness of a company’s accounts receivable processes. These KPIs provide insights into how well a company is managing its credit policies, collecting payments from customers, and maintaining cash flow. By tracking these indicators, businesses can assess their financial health, identify potential issues, and make informed decisions to optimize their receivables process.

Common Accounts Receivable KPIs include:

• Days Sales Outstanding (DSO)
• Average Days Delinquent
• Accounts Receivable Turnover Ratio
• Collection Effectiveness Index (CEI)

Accounts Receivable Performance Metrics help organizations:

• Monitor the speed and efficiency of their collections
• Ensure that cash flow remains steady
• Minimize the risk of bad debts

Why are Accounts Receivable KPIs Important?

Accounts Receivable KPIs are important because they provide valuable insights into the financial health and operational efficiency of a company. Effective management of accounts receivable is essential for maintaining a strong cash flow, which is the lifeblood of any business. Without timely payments from customers, a company might struggle to meet its own financial obligations, leading to cash flow problems and potential disruptions in operations.

Here’s why Accounts Receivable KPIs are crucial:

1. Optimizing Cash Flow

By tracking KPIs like Days Sales Outstanding (DSO) and Average Days Delinquent, companies can identify how quickly they are turning sales into cash. This helps businesses manage their cash flow more effectively, ensuring they have the funds necessary to cover expenses and invest in growth opportunities.

2. Improving Collection Efficiency

KPIs such as the Collection Effectiveness Index (CEI) and Accounts Receivable Turnover Ratio provide insights into how well the company is managing its collections process. Monitoring these metrics allows businesses to spot inefficiencies and take corrective actions to improve collection rates, reduce overdue accounts, and minimize the risk of bad debts.

3. Minimizing Financial Risk

Accounts Receivable KPIs help companies identify potential risks associated with extending credit to customers. By keeping an eye on metrics like the Percentage of High-Risk Accounts and Bad Debt to Sales Ratio, businesses can adjust their credit policies to mitigate risks and protect their bottom line.

4. Enhancing Decision-Making

Regularly monitoring Accounts Receivable KPIs provides financial leaders with the data needed to make informed decisions. Whether it’s adjusting credit terms, refining collection strategies, or optimizing cash flow management, these KPIs empower companies to take proactive steps to maintain financial stability.

Top 14 Accounts Receivable KPIs to Track

Here are some top accounts receivable KPIs that offer valuable insights into financial performance:

Days Sales Outstanding(DSO)

Accounts receivable musttrack how long it takes, on average, to collect payments. This metric is the most baseline performance metric there is, which is why almost everyone monitors it as part of financial reporting. Observing when DSO rises or falls also helps reveal how market forces affect payment times. According to a recent benchmarking survey by APQC, top-performing companies have a below 30 days, whereaslow-performing companies have a DSO of 48 days or longer.

Formula:
DSO = (Accounts Receivable / Total Credit Sales) * Number of Days

Average Days Delinquent

The average days delinquent metric indicates how many days on average payments are overdue. The goal is to get this number as low as possible by encouraging clients to pay quickly. If the number is high, it could point to problems within accounts receivable, or within the larger company. For example, if several payments are long overdue, you could be targeting the wrong customers, or your business could be suffering from understaffing.

Formula:
Average Days Delinquent = (Sum of Days Late for All Delinquent Invoices / Number of Delinquent Invoices)

Turnover Ratio

Companies commonly track this financial KPI to learn how often they convert accounts into cash over a set period, typically a year. It provides helpful insights into a company’s liquidity and cash flow while also indicating how effective the company is at collecting revenue. A high ratio suggests there are lots of open accounts and unrealized revenue, which could mean it’s time to reconsider credit or collection policies.

Formula:
Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable

Collection Effectiveness Index (CEI)

Think of this accounts receivable KPI as a companion metric to the turnover ratio. However, instead of indicating how often accounts turn over, CEI shows how many accounts turn over. A higher number indicates that companies are collecting on most of their accounts. Tracking when and why CEI rises and falls helps companies move closer to collecting on 100 percent of their receivables.

Formula:
CEI = [(Total Receivables – Ending Total Receivables) / (Total Receivables – Beginning Total Receivables)] * 100

Number of Revised Invoices

Invoicing is at the heart of accounts receivable, so it’s essential to track how often invoiceshave tobe revised. If the number is trending upward, it could mean that your accounts receivable department needs additional support or that invoicing policies need revision. Ideally, companies would never have to revise invoices, which creates unnecessary delays in payment.

Formula:
Number of Revised Invoices = Total Number of Revised Invoices / Total Number of Issued Invoices

Staff Productivity

Organizations with large accounts receivable staff invest heavily inlaborcosts to bring in revenue. Get a better picture of how effective that investment is by tracking the productivity of staff individually and collectively. Track the number of receipts processed per accounts receivable full-time employee, and the number of active accounts per credit/collection full-time employee.

Formula:
Staff Productivity = (Number of Receipts Processed / Number of Full-Time Accounts Receivable Employees)
OR
Staff Productivity = (Number of Active Accounts / Number of Full-Time Credit/Collection Employees)

Bad Debt to Sales Ratio

As a measure of the unpaid invoices compared to total sales, this metric sounds simplistic, but not for companies that know how to interpret it. Companies want to keep this number low, but they don’t necessarily want to eliminate or actively minimize bad debt either. A low number means companies are avoiding losses, but they’re also avoiding taking credit risks, which could mean they’re losing sales. Loosening up credit terms might lead to more unpaid invoices, but those may represent a fraction of the potentially increased sales.

Formula:
Bad Debt to Sales Ratio = (Bad Debt Expense / Total Sales) * 100

Percentage of Credit Available

Accounts receivabledepartments that cap the amount of credit they extend should track what percentage of that credit customers leverage,bothindividually and as a collective average. If the percentage is high yet customers routinely pay in full and on time, it’s worth considering raising the credit limit, or doing the opposite when customers abuse credit privileges.

Formula:
Percentage of Credit Available = (Total Credit Extended / Total Credit Limit) * 100

Percentage of High-Risk Accounts

Doing business with a high percentage of high-risk customers could lead to rising amounts of bad debt. Alternatively, low tolerance for risk may make it harder to grow sales. Define what a high-risk account looks like, then group together existing and incoming accounts that meet these criteria. Knowing the percentage of high-risk accounts gives important context to the question of what’s drivingaccounts receivableperformance.

Formula:
Percentage of High-Risk Accounts = (Number of High-Risk Accounts / Total Number of Accounts) * 100

Days Sales Outstanding (DSO)

Days Sales Outstanding (DSO) measures the average number of days it takes a company to collect payment after a sale has been made. This KPI is crucial for understanding how efficiently a company is managing its accounts receivable.

Formula:
DSO = (Accounts Receivable / Total Credit Sales) * Number of Days

While a lower DSO indicates that a company is quickly collecting payments, which is ideal for maintaining cash flow, an excessively low DSO might suggest overly stringent credit policies that could be stifling sales. Conversely, a high DSO could indicate issues with credit policies or collection processes, leading to cash flow problems. Striking a balance is key—ensuring that while sales are not hindered by tight credit terms, the company is still collecting payments within a reasonable timeframe.

Average Collection Period

The Average Collection Period is a financial metric that indicates the average number of days it takes for a company to receive payment from its customers after a sale. This KPI is similar to DSO but is calculated slightly differently and can provide insights into the effectiveness of a company’s credit and collections policies.

Formula:
Average Collection Period = (Accounts Receivable / Annual Credit Sales) * 365

A shorter average collection period means quicker cash recovery, which is essential for liquidity. However, like DSO, if the period is too short, it could imply that the company’s credit terms are too strict, potentially limiting sales opportunities. Companies need to monitor this metric to ensure they are not only collecting payments efficiently but also not losing out on sales due to restrictive credit terms.

Bad Debt Expense

Bad Debt Expense represents the portion of receivables that a company does not expect to collect. This metric is a critical indicator of the effectiveness of a company’s credit policies and collections efforts.

Formula:
Bad Debt Expense = (Allowance for Doubtful Accounts / Total Credit Sales) * 100

While it’s generally preferable to keep bad debt expenses low, a certain level of bad debt is often unavoidable in industries where extending credit is necessary to secure sales. Companies should aim to manage this expense carefully—minimizing it where possible, but also recognizing that some level of bad debt may be an acceptable cost of doing business, especially if it allows for increased sales through more flexible credit policies.

AR Turnover Ratio

The Accounts Receivable (AR) Turnover Ratio measures how many times a company can collect its average accounts receivable in a given period. A high AR turnover ratio indicates that a company is effective in collecting its receivables and managing its credit policies, leading to better cash flow.

Formula:
AR Turnover Ratio = Net Credit Sales / Average Accounts Receivable

However, a very high ratio might also suggest that the company’s credit terms are too strict, potentially driving away customers. On the other hand, a low AR turnover ratio could indicate inefficiencies in the collections process or overly lenient credit terms, both of which can negatively impact cash flow. Companies should aim for a balanced AR turnover ratio that reflects efficient collections without sacrificing sales growth.

Customer Satisfaction

Customer Satisfaction is a key performance indicator that measures how well a company’s products or services meet or exceed customer expectations. While it’s not a direct financial metric like the others, customer satisfaction plays a critical role in a company’s long-term success.

Formula:
Customer Satisfaction = (Number of Satisfied Customers / Total Number of Survey Responses) * 100

Track Account Receivable KPIs All with Business Dashboards

The next step to improving accounts receivable performance is to implement dashboards to supplement the traditional financial reporting process. Once you start tracking the metrics that matter, those insights need to be available to all stakeholders across the organization quickly and easily. Dashboards provide users with an instant glimpse into accounts receivable performance by combining metrics, visualizations, and intuitive tools into one interface.

Get our Accounts Receivable dashboard template and customize it with your own data.