With late payments running rife in many industries, our top three credit control KPIs to keep track of will help you identify areas in your current credit control process that require attention and improvement. Late payments have been an ongoing issue, enough to push the government to overhaul the Prompt Payment Code. How effective is your credit control strategy? Read on to find out which KPIs we recommend you look into and what the results mean for your business.
Days Sales Outstanding (DSO)
Your DSO score is one of the most important credit control metrics that you need to understand. Put plainly and simply, your DSO will show the average number of days that it takes your business to collect debts. A high DSO score means that your business is taking longer to collect debts than a company with a low DSO score. You can find the standard for your industry, which will allow you to benchmark your business against your competitors.
You need to find the right balance for your business and your customers when it comes to DSO. A score that is too high shows that you are possibly being too relaxed with your credit control policies and your cash flow may suffer as a result. But a score that is too low is likely to lead to strained relationships with customers if they are put under too much pressure as a result of your credit control practices.
It is important to look at a large data range to get a good overview of your DSO score, we would suggest starting with twelve months of data and then checking the score quarterly. Also as you are working with averages, be wary of any instances that will skew the data, it might be useful to exclude these situations from your dataset altogether.
Collection Effectiveness Index (CEI)
The Collection Effectiveness Index is a metric that does what it says on the tin. It will demonstrate how effective your collection strategies have been within a specific period of time. It will enable you to compare how much of your receivables have been collected as a percentage. If you use this metric in tandem with your DSO score, you should see your DSO score decrease and your CEI increase as your credit control practices improve.
Accounts Receivable Turnover Rate (ART)
If you want to take a deeper dive into the health of your organisation’s cash flow then you can use your ART rate to determine the level of collections that are turned directly into cash. The turnover rate will demonstrate how often your business is successfully collecting accounts receivables. The higher the rate, the more often your credit control procedures are operating successfully and subsequently, more cash is being injected into the business. There are lots of ways to improve your ART rate, our blog on how to protect your business from late payments outlines steps that you can take to improve your score.
A Little Bonus
As a bonus, we also wanted to highlight the Right Party Contacts Rate (RPC). Your RPC rate is a measure of how often you are reaching out to the right people when attempting to collect your commercial debts. Struggling to get hold of a debtor or the person in charge of accounts payable for your client is often the first barrier to getting an invoice paid on time. This is an important metric to look at if the previous three statistics outlined above are showing a slowing down of debt collection. It is important to keep regular open lines of communication with your clients and their accounts payable teams to ensure that you know who to contact when an invoice remains unpaid.
If you have undertaken some credit control analysis and need some help improving some of your metrics then reach out to a member of the My Debt Recovery team. We will work quickly and efficiently to take on your commercial debt recovery needs and subsequently help improve your credit control metrics. We are a proactive team with a professional but understanding approach with debtors and we’ll keep you informed of our progress along the way. My Debt Recovery operates on a no collection, no fee basis so you have nothing to lose. Contact our team on 0800 009 6106 or firstname.lastname@example.org.