Preparing a KPI Strategy For Accounts Receivable Management

Cash inflow plays a significant role in optimizing and maintaining working capital for a business. Accounts receivables are assets that generate money inflow before or on the due dates. Therefore, adequate management is necessary to ensure these debts remain good and do not turn into losses. A virtual accountant can help firms prepare strategies and policies to improve accounts receivable management. They prepare a KPI report (Key Performance Indicator) that measures the critical accounts receivable areas and determines efficiency and performance. This document indicates areas that need improvement to generate positive cash flow and enhance collection processes. 

The Key Performance Indicators help businesses compare their set goals with actual performance. Instead of giving an overall view of the performance, it points out the necessary only. Developing a KPI strategy requires practising the following steps:

• Establishing AR KPI goals:

Before beginning with the accounts receivables KPI report, businesses must establish the goals to measure. Usually, firms want good relations with customers and increase the cash flow. These goals must be SMART (Specific, Measurable, Attainable, Realistic, and achievable within a time frame). A virtual accountant helps firms analyze their historical data, customer relations, etc., and set the goals accordingly. It guides the firms and directs their effort towards a particular direction. 

• Preparing a KPI strategy:  Once the business knows the goals to achieve, they must prepare the strategy to achieve the KPI goals. It involves effective policies and procedures, a lot of information, documents, workflow processing, etc. With the help of the critical stakeholders of the firm, the business should design the strategy and systems. It can include Freshbooks cloud accounting, aligning policies and procedures with strategies, etc. 
  

• Determining the KPIs to measure:

After developing the goals and strategies, businesses must outline the accounts receivable KPIs to measure. It facilitates data collection and calculation accordingly. Some famous AR KPIs include:

• Reducing day sales outstanding

• Reducing average paydays

• Reducing bad debts

• Improving cash flow accuracy

• Reduce invoice disputes and resolution time

• Declined credit costs Businesses can define the critical areas and choose relevant KPIs based on the goals and strategies. A virtual accountant can assist in doing so. 

• Implementing AR KPI automation: KPI management through manual methods can be burdensome and tiring. It will be time-consuming and tedious. Therefore, automating the process will streamline and enhance efficiency and accuracy. It will convert valuable data into vital KPI information.