You’ve heard the saying, “You can’t manage what you don’t measure.” It’s true. Unless you are tracking your costs or calculating your ratios, you don’t know if your organization’s performance is getting better or worse. You can’t manage your process to improve your collection rates.
- How much is it really costing you to do your own billing and collections?
- Are your days sales outstanding (DSO) in the healthy A/R ranges?
- Would you like to improve your ROI?
So where do you start?
Here are a few important numbers you should be able to calculate and track:
- Calculate your Recovery Percentage. Divide what you have collected by you have charged for that same period. The higher the ratio, the better job the company is collecting the amount owed on those charges.
- Determine your Days Sales Outstanding (DSO) which measures the number of days it takes you to collect your payment after a sale has been made. You calculate the ratio by dividing the ending accounts receivable by the total credit sales for the period and multiplying it by the number of days in the period—monthly, quarterly or annually. The lower the ratio, the better.
You can use the following formula:
(Accounts receivable / Total credit sales) x Number of days = Days Sales Outstanding
- Review your Accounts Receivable Aging Report. This report lists unpaid customer invoices and unused credit memos by date ranges. The aging report is the primary tool used to determine which invoices are overdue for payment and to determine the effectiveness of your collection activities.
Compare it to the healthy A/R ranges listed below.
If you see room to improve your collection results, give us a call at 913-338-4790, x205.
COLLECTPlus can help remove the burden of collections. Our four-phase, automated billing and collection system includes an integrated payment portal and call center. Using COLLECTPlus to capture your remaining debt gives you confidence that you are providing your clients every opportunity to pay.
Let technology help you make the profits you need and deserve!
Source: BSM Consulting’s Maureen Waddle and Derek Preece