The Top 14 Accounts Receivable KPIs You Should Be Tracking

What’s working well on your finance team? What could you improve? The only real way to know is to track your Key Performance Indicators (KPIs), including the goals around accounts receivable. After all, accounts receivable KPIs are vital to the business performance.

However, there are so many different accounts receivable KPIs. How can you choose which to track? The most relevant operational KPIs will vary from company to company, and they may also change with your business goals. A good rule of thumb is to focus on the metrics that bring performance into focus. Below are some KPIs to consider.

What are Accounts Receivable KPIs?

Accounts receivable KPIs are specific metrics that measure the efficiency and effectiveness of a company’s accounts receivable processes. These KPIs provide insights into how well a company is managing its credit policies, collecting payments from customers, and maintaining cash flow. When you track the right KPIs, your team can assess the company’s financial health, identify potential issues, and make informed decisions to optimize your receivables process.

Effective management of accounts receivable is essential for maintaining a strong cash flow, which is the lifeblood of any business. Without timely payments from customers, a company might struggle to meet its own financial obligations, leading to cash flow problems and potential disruptions in operations.

With the right accounts receivable KPIs, your team can:

• Optimize cash flow. KPIs like Days Sales Outstanding (DSO) and Average Days Delinquent help you see ow quickly your company turns sales into cash. The business can then manage cash flow more effectively and have the funds it needs for growth.
• Improve collection efficiency. KPIs like the Collection Effectiveness Index (CEI) and Accounts Receivable Turnover Ratio provide insights into how well the company is managing its collections process. You can spot inefficiencies and take corrective actions to improve collection rates, reduce overdue accounts, and minimize the risk of bad debts.
• Minimize financial risk. Identify potential risks by keeping an eye on metrics like the Percentage of High-Risk Accounts and Bad Debt to Sales Ratio. Your company can adjust credit policies to mitigate risks and protect the bottom line.
• Enhance decision making. Provide leaders with the data needed to make informed decisions. Accounts receivable KPIs empower companies to take proactive steps to maintain financial stability.

Top 14 Accounts Receivable KPIs to Track

Not sure which KPIs you should track? Consider your company’s goals and what you need to achieve in your department. Then, take a look these top accounts receivable KPIs that offer valuable insights into financial performance:

Days Sales Outstanding (DSO)

This metric tracks the average number of days it takes to collect payment, and it is the most baseline performance metric there is. It’s no wonder why almost everyone monitors it as part of financial reporting.

Observing when DSO rises or falls also helps reveal how market forces affect payment times. Generally speaking, top-performing companies have a DSO below 30 days.

Formula: DSO = (Accounts Receivable / Total Credit Sales) * Number of Days

Average Days Delinquent

This KPI shows how many days on average payments are overdue. The goal is to get this number as low as possible by encouraging clients to pay quickly. If the number is too high, it could indicate hat there are issues within accounts receivable or the broader company. For example, you could be targeting the wrong customers or your business could be suffering from understaffing.

Formula: Average Days Delinquent = (Sum of Days Late for All Delinquent Invoices / Number of Delinquent Invoices)

Turnover Ratio

Companies commonly track this financial KPI to learn how often they convert accounts into cash over a set period, typically a year. It provides helpful insights into a company’s liquidity, cash flow, and ability to collect revenue. A high ratio suggests there are lots of open accounts and unrealized revenue, which could mean it’s time to reconsider credit or collection policies.

Formula: Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable

Collection Effectiveness Index (CEI)

Think of this accounts receivable KPI as a companion to the turnover ratio. However, instead of tracking how long it takes for accounts to turn over, CEI shows how many accounts turn over. A higher number indicates that companies are collecting on most of their accounts. Tracking when and why CEI rises and falls helps companies move closer to collecting on 100 percent of their receivables.

Formula: CEI = [(Total Receivables – Ending Total Receivables) / (Total Receivables – Beginning Total Receivables)] * 100

Number of Revised Invoices

Invoicing is at the heart of accounts receivable, so it’s essential to track how often invoices have to be revised. If the number is trending upward, it could mean that your accounts receivable department needs additional support or that invoicing policies need revision. Ideally, companies would never have to revise invoices, which creates unnecessary delays in payment.

Formula: Number of Revised Invoices = Total Number of Revised Invoices / Total Number of Issued Invoices

Staff Productivity

Organizations with large accounts receivable teams invest heavily in labor costs to bring in revenue. Get a better picture of how effective that investment is by tracking the productivity of staff individually and collectively. Track the number of receipts processed per accounts receivable full-time employee, and the number of active accounts per credit/collection full-time employee.

Formula:
Staff Productivity = (Number of Receipts Processed / Number of Full-Time Accounts Receivable Employees)
OR
Staff Productivity = (Number of Active Accounts / Number of Full-Time Credit/Collection Employees)

Bad Debt to Sales Ratio

As a measure of the unpaid invoices compared to total sales, this metric sounds simplistic. However, top-performing finance departments know how important it is. Companies want to keep this number low, but they don’t necessarily want to eliminate or actively minimize bad debt either. A low number means the company is avoiding losses, but you’re also avoiding taking credit risks, which could mean you’re losing sales. Loosening up credit terms might lead to more unpaid invoices, but those may represent a fraction of the potentially increased sales.

Formula: Bad Debt to Sales Ratio = (Bad Debt Expense / Total Sales) * 100

Percentage of Credit Available

Accounts receivable departments that cap the amount of credit they extend should track what percentage of that credit customers leverage, both individually and as a collective average. If the percentage is high yet customers routinely pay in full and on time, it’s worth considering raising the credit limit, or doing the opposite when customers abuse credit privileges.

Formula:
Percentage of Credit Available = (Total Credit Extended / Total Credit Limit) * 100

Percentage of High-Risk Accounts

Doing business with a high percentage of high-risk customers could lead to rising amounts of bad debt. On the other hand, low tolerance for risk may make it harder to grow sales. Define what a high-risk account looks like, then group together existing and incoming accounts that meet these criteria. Knowing the percentage of high-risk accounts gives important context to the question of what’s driving accounts receivable performance.

Formula: Percentage of High-Risk Accounts = (Number of High-Risk Accounts / Total Number of Accounts) * 100

Promise to Pay Conversion Rate

This metric tracks whether customers follow through when they commit to paying by a specific date. It’s one thing for your collections team to get a “yes, I’ll pay next Friday”—it’s another to actually receive that payment.

A low conversion rate usually means one of a few things: customers are overcommitting, your follow-up process needs work, or collectors are prioritizing any agreement over realistic ones. Companies with strong AR performance typically see conversion rates above 80%.

The real value here is what you can do with the data. If certain collectors consistently get better follow-through, figure out what they’re doing differently. If end-of-month promises convert better than 60-day commitments, adjust your approach accordingly.

Formula: Promise to Pay Conversion Rate = (Number of Kept Payment Promises / Total Payment Promises Made) × 100

Average Collection Period

The Average Collection Period is a financial metric that indicates the average number of days it takes for a company to receive payment from its customers after a sale. This KPI is similar to DSO but is calculated slightly differently and can provide insights into the effectiveness of a company’s credit and collections policies.

A shorter average collection period means quicker cash recovery, which is essential for liquidity. However, like DSO, if the period is too short, it could imply that the company’s credit terms are too strict, potentially limiting sales opportunities. Companies need to monitor this metric to ensure they are not only collecting payments efficiently but also not losing out on sales due to restrictive credit terms.

Formula: Average Collection Period = (Accounts Receivable / Annual Credit Sales) * 365

Bad Debt Expense

Bad Debt Expense represents the portion of receivables that a company does not expect to collect. This metric is a critical indicator of the effectiveness of a company’s credit policies and collections efforts.

While it’s generally preferable to keep bad debt expenses low, a certain level of bad debt is often unavoidable in industries where extending credit is necessary to secure sales. Companies should aim to manage this expense carefully—minimizing it where possible, but also recognizing that some level of bad debt may be an acceptable cost of doing business, especially if it allows for increased sales through more flexible credit policies.

Formula: Bad Debt Expense = (Allowance for Doubtful Accounts / Total Credit Sales) * 100

Accounts Receivable Turnover Ratio

The Accounts Receivable Turnover Ratio (ARTR) measures how many times a company can collect its average accounts receivable in a given period. A high ARTR indicates that a company is effective in collecting its receivables and managing its credit policies, leading to better cash flow.

A very high ratio might also suggest that the company’s credit terms are too strict, potentially driving away customers. On the other hand, a low AR turnover ratio could indicate inefficiencies in the collections process or overly lenient credit terms, both of which can negatively impact cash flow. Companies should aim for a balanced AR turnover ratio that reflects efficient collections without sacrificing sales growth.

Formula: AR Turnover Ratio = Net Credit Sales / Average Accounts Receivable

Customer Satisfaction

Customer Satisfaction is a key performance indicator that measures how well a company’s products or services meet or exceed customer expectations. While it’s not a direct financial metric like the others, customer satisfaction plays a critical role in a company’s long-term success.

Formula: Customer Satisfaction = (Number of Satisfied Customers / Total Number of Survey Responses) * 100

Track Account Receivable KPIs All with Business Dashboards

The next step to improving accounts receivable performance is to implement dashboards to supplement the traditional financial reporting process. Once you start tracking the metrics that matter, those insights need to be available to all stakeholders across the organization quickly and easily. Dashboards provide users with an instant glimpse into accounts receivable performance by combining metrics, visualizations, and intuitive tools into one interface.

Ready to take the next step in modernizing your SAP environment? Check this out.

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