In the World of Accounts Receivable Best Practices
Building a strong accounts receivable (AR) department is essential for business success. In a time focused on best practices, and AR improvement strategies, many organizations are struggling to define success surrounding the entire “credit to cash” cycle. Many businesses work to make their AR departments faster at collections or more cost effective, assuming that these steps are the keys to a best practice solution. The “faster and cheaper” concept for AR management best practices is an incomplete thought process. There is also no “one size fits all”blue print for a best practice solution. What works for one company or industry is not guaranteed to be effective or economical for another. A key to succeeding with a new approach to internal AR challenges is to analyze your internal structure across departmental lines and the landscape of your current customers. Along with some core guidelines and principals, this will serve a base for a new best practice process.
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The DSO Calculation (Days Sales Outstanding)
DSO, Days Sales Outstanding Calculation as number to measure the efficiency of your collections.
Are you collecting your invoices effectively?
In light of the fact that DSO alone does not accurately measure performance in credit and collection, we can now arm ourselves with 2 more indicators for accurately measuring performance; CEI (Collection Effectiveness Index) and ADD (Average Days Delinquent)