23 key order to cash kpis to track to become a strategic

23 Key Order to Cash KPIs toTrack to Become a StrategicShared Services Leader

This free guide details 23 important Order to Cash KPIs that shared servicesleaders should use to evaluate process performance, identify actionable nextsteps for improvement, and strategically optimize their organizations.

Includes a printable list of the 23 KPIs towards the end of the eBook.

23 KPIs for Shared Services | 2

Executive Summary

GPOs and Strategic Impact

Over the past several years, organizations are making steady progress toward increasing Global Business Services (GBS) and Shared Services Center (SSC) maturity as well as driving benefits beyond justcost savings – supported by investments in automation.

Only 21% are seeing benefits organizational flexibility and scale,compare with 62% in reduced operating costs.

Source: The Rise of Strategic Shared Services, PA Consulting

As GBS/SSCs adopt a target-operated model and evolve into a strategic partner to sales, Supply Chain Management (SCM), finance, and the entire continuum, the role of a Global Process Owner (GPO) also needs to evolve from driving transactional activities to driving value. This is especially true when leading a dynamic and challenging function like Order to Cash (O2C), which presents diversity in customer behavior, geographies, and business units.

Today, forward-thinking GPOs are creating impact and generating value by intelligently tracking key KPIs, which is critical to successfully delivering on process excellence goals and the strategic objectives of a shared services center.

To facilitate this transformation of a GPO’s role from a Process Manager to a Strategic Leader, this ebook listshelpful KPIs and classifies each metric into the following categories:

Transforming Roles of a GPO

Individual

MetricMetrics that offer insights into employee productivity

Strategic Metric

Metrics critical to top-line and bottom-line impact

Process Health Metric Metrics that reveal the performance of business processes

Chapter 01 Strategic Metrics

Chapter 02 Individual Performance Metrics

Chapter 03 Process Health Metrics

CONTENTS


Process Cost per Invoice has a direct impact on the bottom line.Businesses can minimize this cost by:• Improving productivity across O2C• Collecting on time• Reducing deductions through discipline in upstream processes• Reducing write-offs and tolerances• Keeping track of the overall cost of the process

01

An indication of the overall process cost of the entire Order to Cash cycle,i.e., from generating customer invoices to delivering them.

02

STRATEGIC METRIC

WHY MEASURE IT ?

When dealing with project-based businesses, unbilled revenue has a key rolein working capital management. Keeping close tabs on the contracts thatgovern accrued receivables ensures that the invoices are sent on time andthat the revenue is realized as quickly as possible.

Unbilled receivables, also called “accrued receivables,” are products andservices delivered for which invoices have not been generated.

STRATEGIC METRIC

WHY MEASURE IT ?

Unbilled Revenue

Process Cost Per Invoice

Chapter 01 Strategic MetricsMetrics to track top-line and bottom-line impact


03

DSO represents the value of receivables outstanding or waiting to be collectedfrom customers, expressed in the equivalent number of days of revenue.

04

STRATEGIC METRIC

WHY MEASURE IT ?

A report that generates the most frequently occurring disputes.

STRATEGIC METRIC

WHY MEASURE IT ?

Days Sales Outstanding (DSO)

Top-Five Reasons for Deductions/Chargebacks

Strategic MetricsMetrics to track top-line and bottom-line impact

This metric is an accurate indicator of the current performance of the accounts receivable department.

A lower DSO indicates that a company has a stringent credit policy, which may hamper sales performance. A higher DSO is an indication of inefficiency in the analysis of applicants for open accounts.

A healthy DSO is no more than 5-10 days longer than weighted averagepayment terms. Another way to determine if a DSO is healthy is to benchmark against DSO numbers of companies in the same industry.

The dispute team could refer to this report and take corrective action by drilling down into the source of the disputes and preventing them fromhappening in the future. Some examples include creating sales orders withthe wrong pricing details or finding that a particular carrier delivers damaged goods more frequently than others.


05

This metric keeps track of the bad debts that are a result of uncollectibles

06

STRATEGIC METRIC

WHY MEASURE IT ?

This metric is valuable because it gives a number on the value of deductionsthat an organization is processing. In conjunction with the next metric,which is ‘as a % of A/R,’ this metric will be particularly useful inestimating revenue leakages and understanding the cost of doing businessin terms of allowances for deductions.

STRATEGIC METRIC

WHY MEASURE IT ?

Bad Debt Write Off %

Monetary Value of Dispute Cases


While maintaining a healthy bad-debt reserve is a best practice, keeping close tabs on the bad-debt write-offs figure is vital, as the company needs to sell more orders (depending on the gross margin) to make up for the loss inuncollected revenue.

The disputed value of the dispute case that the customer has specified.


This metric is helpful for identifying process gaps and failures, which can bebenchmarked against companies in the same industry – either as a % oftotal A/R or as a % of total sales.

07

This metric evaluates the dollar value of all disputes raised as the percentageof total A/R.

STRATEGIC METRIC

WHY MEASURE IT ?

Total Dollar of Disputes as a Percentage of Total A/R



This metric is valuable in evaluating the performance of a credit analyst, which isdetermined based on the number of applications they process.

08

The percentage of new applications that your credit analysts have completedprocessing or the percentage of new customers that they have onboarded.

09

INDIVIDUAL PERFORMANCE METRIC

WHY MEASURE IT ?

This metric enables GPOs to manage analysts more efficiently, letting youknow the rate at which exceptions are being handled. In addition, this KPIwill also allow you to optimize the cash application process by evaluatingthe most frequently occurring exceptions and remedying the root causes.

Since most cash application processes have some form of automation involved, an analyst's productivity can be measured by the number of exceptionsthey process.


WHY MEASURE IT ?

Credit Applications Processed

Number of Exceptions Processed

PROCESS HEALTH METRIC

Chapter 02 Individual Performance MetricsMetrics that offer insights into employee productivity


Some analysts have multiple job roles across credit, collections, and billing,so it is essential to examine individual metrics for the different processesthat analysts perform. Invoices issued per FTE are a helpful measure of theproductivity of each employee in billing, enabling GPOs to effectivelycompare performance across the department.

10

A measurement of the average number of invoices received and processed perfull-time equivalent (FTE) team member in the accounts receivable department.

11


WHY MEASURE IT ?

Deductions backlog is a big issue that can impact profits, especially in theconsumer goods industry. Looking at the number of deductions resolved peranalyst will allow GPOs to compare efficiency among analysts to takeaction on the deductions backlog.

The number of disputes resolved per full-time equivalent (FTE) team member,with respect to the total number of disputes raised across the organization.


WHY MEASURE IT ?

Invoices Issued per FTE

Percentage of Disputes Resolved per FTE

Individual Performance MetricsMetrics that offer insights into employee productivity


This metric gives a good idea of the average time required to identify and resolve a deduction, and information about the longest-running deduction cases of different customers.

12

DDO is used to calculate how much time is required to resolve collection disputes. DDO = Number of Open Deductions / (Average Deduction Value x Periods)

13


WHY MEASURE IT ?

Conventional collections wisdom states that the longer one takes to collect, the greater the chances of it turning to bad-debt. This metric helps in identifying invoices across varied aging periods. For example, to have a clear picture of the invoices with past-due more than 45-day term, we sum up the number of invoices from aging buckets above 45-day

This metric is a ratio of A/R invoices with a certain past-due limit to the overall past-due invoices.


WHY MEASURE IT ?

Days Deductions Outstanding (DDO)

Percent of A/R Items X + Days Past Due

Chapter 03 Process Health MetricsMetrics that reveal the performance of business processes


Credit managers use different strategies for evaluating credit exposure

will help GPOs in estimating the bad-debt reserve better and prevent

14

This is a comparative relation between different strategies and the credit limits assigned to them. For example in the event where: Credit Exposure for a new

shows that the company is taking more risk in January.

15


WHY MEASURE IT ?

As the accounting phrase goes, “Put in the Books!”. A company needs to have all its money in the books for the treasury teams to understand working capital available on hand. Failure to apply cash the same day will affect downstream processes such as collections where there is a risk that collections analysts will contact customers who had already paid.

of payment received.


WHY MEASURE IT ?

Credit Limit by Strategy

Percentage of Cash Applied Within 24 Hrs.

Process Health MetricsMetrics that reveal the performance of business processes


If DSO is an overall performance indicator of the accounts receivable

used to design collections strategies tailored to customer payment behaviors.

It expresses the average number of days the invoices get paid after the due date.

17


WHY MEASURE IT ?

A time series of this measure will help you evaluate• Effectiveness of your collections strategy and pre-payment discounts strategy

Your customers’ payment behavior•

An upward trend is a positive signal for your company’s working capital.

The monetary value of invoices received on or before the stipulatedpayment terms.


WHY MEASURE IT ?

16 Average Days Delinquent

Collections Received within Terms



The faster an invoice is delivered to the customer, the better the chancesof getting paid early. Not all customers are looking to delay payments; aslong as the invoice reaches them within their payment cycles, there is agood chance that they’ll pay. Reducing the time taken to generate theinvoice is critical for collections teams, as it enables proactive collections.

18

As invoicing is labor-intensive work that involves data entry, paperwork,revisions, approvals, and bookkeeping, there is a need to drive efficiency bymonitoring the time taken by analysts to generate invoices.

19


WHY MEASURE IT ?

Invoice errors create confusion between suppliers and buyers, and also diminishsupplier credibility. The chain of paperwork for communicating a mistake foundin an invoice sent by you to the customer is an inconvenience at both ends,generating unnecessary friction. Many non-trade deductions can beattributed to invoice errors and eliminating these can expedite collections.

Invoice Error Rate measures the percentage of the total number of invoicescreated by the billing and invoicing teams that have an error.


WHY MEASURE IT ?

Time to Generate Invoices

Invoice Error Rate as Percentage of Total Invoices



This KPI helps GPOs estimate the volume of work that the credit team canhandle at its current size, which is useful for planning periodic creditreviews and blocked order reviews.

20

The total number of credit reviews performed and the amount of time taken per review.

21


WHY MEASURE IT ?

This metric can be used to highlight: • Customer behavior and the likelihood of disputing invoices

Efficiency and effectiveness of the deductions team in researching andfinding invalid deductions

•

A measure of the dollar amount collected on the disputes raised for invaliddeductions.


WHY MEASURE IT ?

Number of Credit Reviews/Credit Review Time

Percentage of Collected Amount from Disputed Invoices



This metric is a proxy for measuring the effectiveness of the collectionsdepartment. The closer this number is to 100%, the more effective thecollections team.

22

The amount collected in a given time period in relation to the amount ofreceivables available for collection in that same time period.

23


WHY MEASURE IT ?

This metric helps you determine the effectiveness of the cash applicationautomation you’ve put in place as well as the effectiveness of the analystsresolving the exceptions.

The ratio of unapplied cash to the total payments received during a specificperiod of time.


WHY MEASURE IT ?

Collections Effectiveness Index

Unapplied Cash as a % of A/R


A summarized list of 23 Order to Cash KPIs should use to evaluate process performance, identifyactionable next steps for improvement, and strategically optimize their organizations.

Final Thoughts

Achieving Real-Time Visibility into Process and Performance-Level Metrics

As GPOs transform from process managers to strategic leaders, it becomes imperative to track and enable real-time global visibility into strategic metrics, individual performance metrics, and metrics that offer insights into the health of business processes.

Enable Real-Time Visibility of O2C Process Health and Analyst Productivity Improve Analyst Productivity by Eliminating Manual ReportingStandardize Reporting across the Globe

Leverage AI-based recommendations on quick course corrections for daily A/R operations using Receivables Analytics .

Receivables Analytics Cloud helps your senior management stay on top of critical KPIs, including but not limited to Day Sales Outstanding (DSO), Bad Debt, Average Days Delinquent (ADD), and Write-Offs. Organizations can drill down on individual KPIs to perform in-depth root cause analysis. With Receivables Analytics, you can:

Download

See How

Printable ChecklistGet a printable list of the 23 O2C KPIs discussed in this ebook.


https://f.hubspotusercontent00.net/hubfs/190654/23%20KPIs%20eBook_checklist.pdf

https://www.highradius.com/platform/receivables-analytics/

Achieving Real-Time Visibility into Process and Performance-Level Metrics

https://www.highradius.com/industry-benchmark-report-receivables-management/�https://www.highradius.com/platform/freeda-digital-assistant/�https://www.highradius.com/platform/rivana-arti�cial-intelligence/�

https://www.highradius.com/software/integrated-receivables/�

About HighRadiusHighRadius’s Award-winning AI-enabled solutions powers 200+ Global 2000 companies optimizing their Order-to-Cash and Treasury Process. HighRadius™ Autonomous Systems, comprising of Integrated Receivables™ , Cash Forecasting Cloud, Rivana™ and Freeda™ , uses AI-powered technology and digital assistants to improve your Receivables and Treasury processes beyond best-in-class industry benchmarks.

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23 key order to cash kpis to track to become a strategic

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