08/09/2023
How much money is your business leaving on the table?
Accounts Receivable (AR) is money a company's customers owe for goods or services they have received but not yet paid for.
It's also an invisible, black hole of cash opportunity for a business.
Most businesses, that review their finances on a regular basis, will track AR as part of its monthly financial reports.
Often, it's simply measured as a total amount of AR for a company. There typically isn't a lot if detail in the number beyond that.
Sometimes, the company will also add a Days Sales Outstanding (DSO) metric to their regular financial reporting. DSO represents an average number of days it takes for a company to convert its accounts AR into cash.
Unfortunately, this still could be a major problem (and cash opportunity) for your company. Here are three major issues:
1. Reporting Frequency.
Financial reporting typically occurs monthly in businesses. That's 28 to 31 days apart between reports. AR can build quickly when you don't report more frequently.
I recommend that AR and DSO be tracked and reported in a Control Chart daily on a financial dashboard.
2. DSO Is An Average.
The DSO metric is an average of accounts past due and averages can look good, but not tell the whole story. It is important to see the full range of data.
I recommend that DSO also be monitored daily with a Process Capability Analysis, and that the Min, Max, and Range of AR be shown on your dashboard.
3. Lack Of Understanding.
Because the Devil is in the Details, you also need to know the biggest outstanding AR issues facing your company. With a standard report, this is often lost.
I recommend that your dashboard also display any outstanding AR that are over a certain threshold (upper specification limit on your Process Capability Analysis).
Potential AR Problems.
AR is a process. When a process is not fully managed or monitored, it can cause problems. The problem with you AR Process is that it is often invisible to the company.
There are typically four things that you can do to improve AR:
1. Map, improve, and document the process. Make it structured and repeatable.
2. Establish dedicated ownership. Often AR issues arise because there are too many people responsible in the process.
3. Define Escalation Points and Activities in your AR program. Involve key personnel and conduct specific actions at certain DSO points with each individual AR.
4. If AR is an issue, hold a weekly working group meeting to discuss outstanding AR issues over thresholds and actions being taken.
Does you business focus on AR?
Do you know if you have AR issues?
What are you doing about it?
*Martini, Hughes & Grossman*
A firm founded by an Ex-Federal Judge along with a Groups of Attorneys, Certified Fraud Examiners & Private Investigators. We don't charge anything upfront, but a fee if we do collect on any given portion of the balance. Call us today for a FREE consultation!!
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