If you want to improve your credit control procedures then effective Key Performance Indicators (KPI) metrics can help you reach your goals. For business owners, local councils and law firms, measuring the right KPIs can lead to actionable strategies and an improved cash flow management. The fact is, you need your customers to pay on time, so here are our top 5 best KPIs for measuring credit control.
1. Collection Effectiveness Index (CEI)
The Collection Effective Index is a crucial KPI to focus on when it comes to your credit management journey, since it provides such a high-level, precise account of debt control. This metric compares the amount of debt that was collected in a given time period to the amount of receivables that were available for collection in that time period. Essentially it’s 'what was collected' out of 'what was available for you to collect’. It’s expressed in percentage terms and is great KPI to set firm targets to.
2. Average Age of Debt or Days Sales Outstanding (DSO)
The average age of debt, or day sales outstanding (DSO) is one of the most popular KPIs utilised in the debt recovery process. It shows the average number of days the customer loan has been past due, measured from the day the payment was due. A high DSO proves a business currently has ineffective debt recovery process.
3. Profit Per Account (PPA)
The Profit Per account (PPA) KPI shows how much profit is generated on average by each account you’re collecting from. It is an important tool to illustrate how each account is impacting your overall profitability and is calculated by dividing your organisation’s gross profit (total operating expenses subtracted from total revenue) over a chosen period of time, and dividing that by the total number of delinquent accounts managed in that same period of time. Set some strategic goals against this KPI and you’ll reap the rewards.
4. Promise to Pay (PTP)
The Promise to Pay (PTP) KPI is an important way to measure the effectiveness and efficiency of your debt collection efforts. If pursuing an omnichannel collection process that results in a debtor promising to pay, you’re a step closer to achieving your goal, which is why PTP is such an important debt recovery KPI. PTP is measured as a percentage, and it measures the correspondence made to a debtor that results in a promise of payment from them.
5. Account Receivable Turnover Ratio (ART)
The Accounts Receivable Turnover Ratio (ART) KPI measures the rate at which you collect on your outstanding accounts. It’s simply calculated by dividing credit sales by average receivables. This KPI must be monitored and analysed in detail to ensure the overall effectiveness of your organisation’s cash flow management.
Are you looking to improve your organisations reconciliation efforts when it comes to delinquent accounts? Do you wish to develop, refresh, or re-evaluating your existing credit policy, powered by KPIs? Lateral offers the most flexible and robust debt recovery and debt collection software on the market, boasting over 700 plugins which integrate with various diallers, SMS and letter sending companies so that everything is tracked. In addition, with our award-winning Decision Engine, Lateral is able to automate more tasks while creating more intelligent workflows! Get in touch today and try a free demo.