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As you review your metrics, here are five signs that there may be a problem with your collection practices: DSO Is Rising: Days Sales Outstanding is the most common metric for measuring accounts receivable (AR) performance. If DSO is rising, you are falling behind.
Under-performing AR has the potential to create a cash flow crisis that can shut down your business in very short order. Without effective AR management, your cash flow is subject to entropy as the ARages, as well as to the shocks caused by customer defaults. This software firm did not actively manage its AR.
You should also segment your AR portfolio to see how risk is distributed by things like customer purchasing volume, distribution channel, industry type, geographic region, ARaging bucket, and so forth. This ensures that cash is available for ongoing operations and investments, reducing reliance on external financing.
What Is an ARAging Report? As an assessment and diagnostic tool, it’s hard to overstate the importance of your company’s accounts receivable (A/R) aging report. ARaging reports provide concrete information that can be used to take action. An aging report also analyzes how your customers’ companies work.
Accounts receivable (AR) is a critical component of a company’s financial health, representing the outstanding invoices or money owed by customers for goods or services delivered but not yet paid for. Efficient management of accounts receivable ensures steady cash flow and minimizes the risk of baddebts.
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