The KPIs you Need in Accounts Receivable (AR) and Order-to-Cash (O2C)

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Sarah Fane
Dec 2, 2020

To have effective benchmarking that allows you to make informed decisions about major projects in accounts receivable (AR) or Order-to-Cash (O2C) t’s important to understand how you benchmark as an organization.

There are two areas to focus on when assessing your benchmark – your processes and your people.

To benchmark your processes, you should perform a detailed assessment of your current processes to identify maturity gaps and track key metrics that include

  • Hit rates
  • Unapplied cash amounts
  • Days sales outstanding
  • Volume and dollar of past-due invoices.

To benchmark your people, you should assess the skillsets of your team while also critically evaluating yourself as an employer. Look at metrics such as

  • The average salary costs for each of the roles within your department
  • The number of accounts assigned to each analyst
  • What kind of communication skills you and your team possess?
  • What are the problem-solving skills you employ and use to train your team members?

The overall end-to-end order-to-cash process starts at managing sales orders, through to warehousing, outbound transportation, processing customer credit, invoicing customers, Processing AR, Managing and processing collections and managing process adjustments / deductions.

In a recent webinar, Elaine Nowak of HighRadius shared her insight and experience from benchmarking Accounts Receivable departments as well as APQC’s recent data and KPIs for the Order-to-Cash process.

Nowak explained that it’s important to have a balanced set of KPIs for process benchmarking KPIs for your order to cash process. “When you capture cost data and FTE data and want to get a true picture so you need to account for pieces of that work that is happening in the field and out in the business. The work your sales people and other managers do need to be included in the numbers to get an accurate picture. Benchmarking should be done with a normalizer as it is difficult to your compare yourself to the industry in terms of absolutes, so you need a denominator.”

Taking a closer look at each one of these measurement categories for a moment:

Cost KPIs in Accounts Receivable

Cost KPIs measure the cost of a process normalized by some factor, such as revenue, percentage of revenue, or total process cost per invoice; generally, a lower number (all else being equal) is better for cost KPIs. Assess the total cost of the end-to-end value stream, or the total cost of the individual processes that make up order to cash.

Using the balanced set of KPIs to track, first look at the cost of the process per revenue or other normalizer. An example would be what is the process cost per remittance.

cost of otc process

These stats are taken from the AQPC “Open Standards Benchmarking Database”

Top performers’ O2C process cost is almost 2.5X less than bottom performers

Here is how to calculate this metric

  • Denominator – which is the total annual revenue, divided by 1,000
  • Numerator – COST = fully loaded labor, total FTEs, systems allocations, overhead allocations or other cost allocations (all total costs)
  • # people, systems, overhead = total cost
  • The data was divided into quartiles. So median is the middle number. N = almost 600 participation instances


Productivity KPIs in Accounts Receivable

Productivity KPIs can be hard to think of how to measure. But think of this measure as the output produced per input, and typically a higher number (again, all else being equal) is better for these KPIs. The number of invoices, normalized by a factor such as an FTE.

Examples of productivity metrics include

  • Number of credit approvals per credit FTE
  • Number of receipts/remittances processed per AR FTE
  • Number of invoices per AR FTE

From “Open Standards Benchmarking Database” AQPC

productivity kpi

This shows number of receipts (incoming payments, regardless of what form they take) processed per FTE.

The productivity disparity between top and bottom performers for credit and receivables is dramatic

All assessments and definitions are available on the AQPC website.

Efficiency KPIs in Accounts Receivable

Efficiency KPIs measure how efficient resources are in performing work, again must usually be normalized, and are usually expressed as a percentage.

The direction of efficiency metrics depends on the specific KPI. E.g. #full time equivalent – assumes a 40-hour work week – estimating percentage of people’s time spent on these processes, such as the process FTE in terms of revenue. You may also look at quality as a measure, such as error rates or automation rates.


From an efficiency perspective you would capture the number of process FTEs per revenue, process quality or automation statistics

Examples of these type of KPIs would include:

  • Perfect order performance, sales order accurate documentation rate 
  • Percentage of active customers that are delinquent at any time during the year
  • Total uncollectible balances as a % of revenue
  • Percentage of receipts received electronically


o2c fte

Efficiency top performers’ O2C FTE number is a little under half of that of bottom performers.

  • Denominator  - Total annual revenue divided by billion
  • Nominator – How many people roughly managing sales, invoicing, credit and collections, receivables, adjustments and deductions

Where you fall in the quartiles will reveal the opportunities for improvement – investing in automation, standardization, and so on

efficiency kpi

In addition, top performers receive the majority of receipts electronically, and report 18 days lower DSO

The efficiency Metric shows that the percentage of receipts received electronically – 94% for top performers, 75% for bottom.

We also see on the right that the Days Sales Outstanding for top performers is on average about a month or 30 days,

While the bottom performers is almost 50 days. We can see a real disparity between top and bottom performers. And even just improving your DSO by a few days could have a tremendous impact on the bottom line for an organization.

Receiving receipts in a digital format helps make the top performers more efficient.


Cycle Time

Finally, cycle time KPIs measure duration; (e.g. number of days, number of hours, number of months) usually, the lower/faster the results, the better.

These KPIs would include things like

  • Cycle time in days for credit approval
  • Cycle time in days to generate complete and correct billing data
  • Days Sales Outstanding



So some suggested guidelines on how to benchmark your order-to-cash

  • Treat all your lines of businesses differently
  • Compare against your own best numbers from the past as well as industry best-in-class
  • Track and identify those KPIs that have a direct impact on your organizational goals
  • Evaluate how you are doing as an employer while performing people benchmarking
  • Plan future changes in accordance with the benchmarked results


For more information, view the full webinar here

More Order to Cash Resources

Hewlett-Packard Enterprise's Game Plan for O2C in a Recession

Order to Cash blogs


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