Your company is growing, which is a great thing. But as you watch your revenue grow, you'll want to watch to see whether your Accounts Receivable Days are growing, too, because that can be a sign the cash you need to keep the lights on is stuck in somebody else's pockets, leaving you short and unable to pay your expenses.
- KPI: AR Days
- DEFINITION: Accounts Receivable Days is a measure of how quickly you collect cash from your customers
- FORMULA: AR Days = Accounts Receivable / (Total Revenue / 365 days)
- SIGNIFICANCE: Cash keeps the lights on. If you're not collecting it from your customers as quickly as you need to, you might run into problems.
- RECOMMENDATION: If your AR Days are too high, consider more aggressive collection policies, or change your terms to incentivize faster payments.
Companies are generating more data than ever before, but most of it just sits there. Getting good insights from it is often too hard, too costly or just takes too much time. That's too bad because the benefits of being data-driven are substantial. (See The ROI of Big Data, Analytics & Benchmarking for more.) Part of the reason we developed our Big Data, analytics and benchmarking software was to solve this problem so CEOs and senior managers could get the data-driven insights they need to leverage strengths, strengthen weaknesses, identify threats and exploit opportunities. This series of blog posts examines the individual performance metrics that make up that analysis.
For more information on the value of measuring financial ratios, read here.