Just as your annual health check-up detects medical issues and helps identify risk factors before they cause problems, a yearly working capital check-up is crucial to help you stay on financial track.
To keep your working capital health in check, here are a few handy metrics to keep an eye out for:
1. Day Sales Outstanding (DSO)
Day Sales Outstanding (DSO), measuring the average time to collect receivables after a sale, is often considered the holy grail of Accounts Receivable health. Corporates of all sizes can use this nifty metric to gauge whether they must step on the gas regarding collections.
Caution: Looking at DSO in isolation is like looking at your weight instead of your BMI. DSOs vary by industry, time of the year, and concentration of receivables, just as weight is meaningless without knowing one’s height, medical conditions, and muscle mass to assess overall health.
How can you improve it?
With Global PayEX’s invoice presentment portal, corporates have achieved a DSO improvement of over 20%. With intelligent multi-channel dunning, reminders with payment links are a simple yet effective tool to improve collections, especially for late-paying customers! Further, our Receivables Reporting has proven itself a game-changer in identifying which customers to incentivize and facilitating accurate receivable forecasting.
2. Revenue Enhancement
Working capital health entirely depends on how revenue enhancement continues to perform well. Organizations of all sizes emphasize a continuous revenue stream because it gives them enough volume to stay on top of operating costs.
Caution: Revenue enhancement needs 360-degree visibility to keep your working capital healthy. As with your annual health, taking care of one particular health area, such as Order-to-Cash, does not bring you good health.
How can you improve it?
The AR automation engine from Global PayEX is the driving force to accelerate revenue for corporates. Our platform enables clients to enhance their annual revenue by 1 – 4.5%. When Global PayEX’s SaaS platform is integrated with the ERP, it provides better visibility, thus enhancing revenue by helping you understand DSO weaknesses and determine how soon you can get paid or take steps to accelerate collections. With automated ERP posting, reconciliation is expedited to enable faster credit unlocks.
3. Deduction Management
Days Deduction Outstanding (DDO) measures the average time to resolve deductions and collect revenues. Fast and accurate deduction management minimizes delays, resolves disputes, and improves working capital health.
Caution: Deduction management can be tricky. Corporates are familiar with unauthorized deduction management, settling about 15% of claims on average. At the same time, 0.5% of AR is written off on average due to untimely and wrongful validation, resulting in revenue leakage. Just as a health misdiagnosis can be dangerous, incorrect deduction management is detrimental to working capital health.
How can you improve it?
Global PayEX brings a sophisticated solution with automated workflows to manage deductions. With claims raised in the platform, workflows apply logic to identify, tag, and auto-apply valid deductions for faster resolution. The workflows also helps manage disputes and reduce write-offs by 5% – 25%.
4. Customer Experience
Elevated customer experience keeps you going strong and earns you trust and credibility. Improving collections is an overlooked but crucial component of the customer journey.
Caution: Poor collection customer experience can lead to slow collection cycles the same way long waiting lines at a doctor’s office deter several individuals from completing their annual health check.
How can you improve it?
Global PayEX’s AR tool provides a self-service customer portal for dealers/distributors to view and pay invoices in real-time, reducing friction and improving customer experience.
Global PayEX brings a wealth of analytics to improve visibility on your working capital health. Amid global tension of high inflation rates where #CFOs work hard to protect operating costs, leveraging working capital is a sustainable approach. Just as your annual health check can help with early diagnosis and set you on a path of corrective action for longevity, working capital health checks do the same for your business. For more information on your working capital health, check out our range of AI-based Accounts Receivables automation solutions.
Author: Rea Sarah Caldeira
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