In the dynamic world of finance, measuring performance and efficiency is paramount. For CFOs and finance teams, keeping a watchful eye on key performance indicators (KPIs) is not just good practice – it’s essential. In this blog, we’ll explore the top 5 Order to Cash KPIs every CFO should track, shedding light on their significance and how they can guide your financial strategy. Plus, we’ll discover how FinFloh can help streamline and optimize these critical metrics.
Days Sales Outstanding (DSO) – The Efficiency Indicator
What it is: DSO represents the average number of days it takes to collect payment from customers after a sale. It’s a crucial metric for measuring receivables performance.
Why it matters: A low DSO signifies efficient receivables management, ensuring your business gets paid promptly.
Aging of Receivables – The Receivables Timeframe Indicator
What it is: This KPI categorizes outstanding invoices based on their age, helping you identify potential issues in your credit policy and cash flow.
Why it matters: By monitoring receivables aging, you can address credit and cash flow problems proactively.
Cash Conversion Cycle (CCC) – The Working Capital Gauge
What it is: CCC measures the time it takes to convert inventory into cash. It combines inventory holding period, DSO, and average payment period.
Why it matters: Shortening CCC enhances working capital efficiency, providing your business with greater financial flexibility.
Collection Effectiveness Index (CEI) – The Collector’s Performance Barometer
What it is: CEI reflects the percentage of receivables collected based on various factors. A higher CEI indicates an effective collection strategy.
Why it matters: Improved CEI results in better cash flow, reduced outstanding receivables, and more informed credit decisions.
Bad Debt Ratio – The Credit Risk Watchdog
What it is: This metric represents the percentage of uncollectible debts relative to total credit sales, helping you identify potential credit issues.
Why it matters: Monitoring the bad debt ratio enables you to mitigate credit risk and make informed credit decisions.
Conclusion
As your business continues to grow, the complexity of managing these KPIs across various systems and processes also increases. This is precisely where FinFloh excels. By connecting all your finance and sales systems together and serving as the single source of truth for all your receivables data, we offer a comprehensive solution to streamline and optimize your order-to-cash operations. With FinFloh, you can stay informed, operate efficiently, and maximize your cash flows.