How to measure effective accounts receivable management
A well-structured accounts receivable management process helps you get paid faster and reduces financial risk. But how can you tell if your approach is truly effective? It starts with tracking the right metrics. By focusing on clear KPIs, you gain insight into the performance of your accounts receivable process and uncover opportunities for improvement.
Here are three key indicators to measure your success:
1. Average Days to Payment
How many days does it take, on average, for a customer to pay an invoice? This metric shows how quickly payments are coming in after invoices are sent. The lower this number, the healthier your cash flow. A downward trend usually reflects consistent follow-up and clear communication.
2. Days Past Due
In addition to the average payment term, it’s important to track how many days invoices are paid late. This tells you whether customers are consistently missing deadlines. A rising number may indicate weak follow-up or unclear payment terms.
3. Write-Off Rate
The percentage of invoices that eventually have to be written off due to non-payment should be kept as low as possible. This figure gives you a direct view of your credit risk. A low write-off rate suggests your accounts receivable process is effective at identifying and resolving payment issues early.
Monitoring these KPIs regularly helps you stay in control and avoid unpleasant surprises. And with the right software, you can track these figures effortlessly and improve them automatically—through smart reminders and actionable reporting.