All AR departments should be using Days Sales Outstanding (DSO) to measure their performance. This key indicator is not only vital for predicting cashflow, but also provides useful information that informs your risk exposure regarding each customer, including:
- Satisfaction levels
- Payment patterns
- Creditworthiness
Yet, a recent study found 77%* of AR departments are behind schedule on collections. This has a huge knock-on effect for the health of the business.
Here is ONE strategy that shows you how to streamline your credit management procedures:
1. When onboarding new customers, be sure to thoroughly assess their creditworthiness and provide them the right terms and right amount, given their payment history from credit bureaus.
2. Set defined timeframes to perform routine, periodic reviews.
3. Ensure that internal credit management policies are adhered to and reviewed at least annually (and more frequently for accounts with high exposure).
4. Be diligent about managing limits to lessen your exposure (adjust as needed based on economic changes).
5. Create an internal, standardized credit scoring model to facilitate better risk assessment and credit decisions across your entire team.
6. Create criteria that alert team members when a review of creditworthiness is necessary (e.g. a customer’s average days to pay has changed: Does this put you at an increased risk?).
Want to read another 5 strategies? Download here
*Meeting the Growing Need for AR Modernization. (B2B and Digital Payments Tracker® Series). October 2023. PYMNTS Intelligence.
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