Quick Ways to Assess Your Accounts Receivable Metrics

  • October 12, 2021
  • 0
  • 9 Views

So, you have five or six accounts receivable, and your revenue is coming in but not fast enough. You are asking, how can I improve my cash flow performance?

Well, you could go ahead and consider taking on a project that turns around some of your accounts receivable. The problem here is that you do not want to get into a cycle where you are turning accounts over to collections every month, and you also do not want to be turning accounts over to collections every three months.

In this relevant article from Upflow, we will look at accounts receivable metrics for finding quick turnarounds of accounts receivable.

Gross Sales and Net Sales:

First of all, there are two major types of business accounting metrics that are often used to determine the performance of an account

  • gross sales, and
  • net sales

You should be able to break down the difference between these two by looking at your accounts receivable metrics. The gross sales price is what it represents – what you owe for products that you have sold to your customers. This price includes any taxes that you have paid. The net sales price, on the other hand, simply reflects what you have actually earned from your customers for their purchases and you do not include any taxes on this figure.

If your accounts receivable is a good measure of your company’s overall performance, then you may want to consider including a key performance indicator, or KPI, in your Accounts Receivable metrics. The KPI can provide you with valuable insights into how well your customers are processing their transactions and how well your business is meeting its obligations.

Closely Look at Your Accounts Receivable Performance Indicators:

Another way to assess your arrears is to closely look at your Accounts Receivable Performance Indicator or ARI. The ARI is simply the gross sale price divided by the average time to process an account. The lower the ARI, the better. ARI is only as accurate as the data it is derived from, which is why you should have strong documentation on your accounts receivable.

Your revenue and profit margins will show the level of success you’re achieving as a business. When it comes to profits, remember that it all adds up. If you have very few sales but lots of customers, you will probably make less money than you thought you were making. So, this is why you need to know the balance between revenue and expenses so you can properly assess your company’s current profitability.

Gross Margin:

The third key accounts receivable metrics discussed in this article is gross margin. This is also one of the most important, because this tells you how much profit your business is generating. Many businesses falsely assume that they have a large profit margin when they don’t, and this can lead them to spend too much money unnecessarily. Keep in mind that the higher your gross margin, the greater your profit margin is, but it’s still important to consider the cost of doing business to calculate your gross profit.

Delinquency Rates:

Delinquency rates are calculated by looking at the number of accounts that have gone delinquent versus the number of accounts that are still in circulation. While this doesn’t provide you with an exact number, it gives you an idea of where your company stands. If you have a lot of inactive accounts and customers who haven’t made any payments yet, then you could be in trouble, so this is something that should be taken into consideration.

Conclusion:

In conclusion, it’s important to know the different accounts receivable metrics to assess your arrears. You need to make sure that you are paying your bills on time, you’re generating enough revenue to cover your costs, and you aren’t paying more than the market value for your items. Also, you need to understand the relationships between all of these so that you can determine which areas of your business need the most work.

Read more:
Quick Ways to Assess Your Accounts Receivable Metrics