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Why Board Members Care About Accounts Receivable—and the Best Metrics to Show Them

     

Why Board Members Really Care About Receivables PerformanceIt’s the job of the board of directors to oversee the financial and legal health of your organization. The board has a fiduciary obligation to protect the interests of all shareholders. Because of this, you must keep your board apprised of company finances, and this includes accounts receivable, which is often a very significant asset on the balance sheet.  

The Work of the Finance Team is Crucial and Visible

The finance team, including AR, does critical work to keep the business on track. The finance team carries the burden of tracking and recording inflows and outflows of cash, including fulfilling the sales process by invoicing and collecting amounts owed. An uncluttered dashboard can provide visibility to the board of the most critical data they need to see without overwhelming them.

What Data Does the Board Need?

To make the best decisions for the company, board members want accuracy and transparency in financial reports. AR performance is a fundamental “canary in the coal mine” for the business. Cash flow is everything when it comes to operational stability and planning for the future, so this will always be front and center on the board’s radar.

Presenting the most informative AR metrics helps the board assess financial health far better than just looking at financial statements. The most important metrics describe the health of the business in the present and project future performance. 

Top Performance Metrics to Take to the Board

  • AR Aging: Disclosing the total open AR balances and parsing by aging buckets is a baseline metric that board members should see at every meeting.

  • DSO: Days sales outstanding shows the board how long it takes you to get paid and is a baseline measure of AR team performance.

  • Best Possible DSO: The closer DSO is to best possible days sales outstanding, the better, so the board can tell at a glance how effectively the AR team is collecting.
  • ADD: The average days delinquent metric conveys how many days invoices are running late.

  • AR>90: Assuming net 30 (or less) terms, showing the board the dollar amount of invoices aged past 90 days helps them assess financial risk.

  • CEI: The collection effectiveness index offers similar information to DSO but on a timelier basis, so it’s an accurate health check of immediate AR efforts.

Automation Ensures Accuracy

When you bring reports, data, and metrics to your board, you must have the latest and most accurate information. Hand crunching metrics is time consuming and prone to errors. An automated AR system such as YayPay provides timely results, accurate on an hourly basis, so the snapshot of your company’s financial health is extremely accurate.

YayPay is certified by the American Institute of Certified Public Accountants (AICPA), for SOC 2 Type 1 and HIPAA Security Compliance Assessment Completion so you know it’s reliable, secure, and trusted—and will provide a dashboard of informative and precise data and metrics for your board of directors meeting. Contact us to see a demo and unleash a more powerful dashboard to keep your board informed and your finances on point.

The Definitive Guide to Buying an Automated AR Solution

Anthony Venus

About the author

Anthony Venus Anthony co-founded YayPay in 2015 to fulfill the mission of making collecting money fast, easy, and highly predictable and to strive towards a vision of autonomous commerce. He is a multi-time entrepreneur and has lived and worked on five continents. He was co-founder and CEO of Meridian Equity Partners, a licensed financial and lending firm; Strategic Intelligence, an online publishing firm; and Marketshare, a data collection and market-research company acquired by Harris Interactive (AC Nielsen) where he also served on the global management team. Anthony’s career began at The Economist Group. Read more articles by Anthony Venus.

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