{"id":7913,"date":"2024-10-14T14:14:23","date_gmt":"2024-10-14T14:14:23","guid":{"rendered":"https:\/\/alwadiholding.com\/aw-egypt\/?p=7913"},"modified":"2024-10-14T16:05:57","modified_gmt":"2024-10-14T16:05:57","slug":"kpi-metrics-for-accounts-receivable-formulas","status":"publish","type":"post","link":"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/","title":{"rendered":"8 Effective KPI Metrics for Accounts Receivable| Formulas"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"7913\" class=\"elementor elementor-7913\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-54bd196 cspt-col-stretched-none cspt-bg-color-over-image elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"54bd196\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-137d742f cspt-bg-color-over-image\" data-id=\"137d742f\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-3cd5f9d4 elementor-widget elementor-widget-text-editor\" data-id=\"3cd5f9d4\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<style>\/*! elementor - v3.23.0 - 05-08-2024 *\/\n.elementor-widget-text-editor.elementor-drop-cap-view-stacked .elementor-drop-cap{background-color:#69727d;color:#fff}.elementor-widget-text-editor.elementor-drop-cap-view-framed .elementor-drop-cap{color:#69727d;border:3px solid;background-color:transparent}.elementor-widget-text-editor:not(.elementor-drop-cap-view-default) .elementor-drop-cap{margin-top:8px}.elementor-widget-text-editor:not(.elementor-drop-cap-view-default) .elementor-drop-cap-letter{width:1em;height:1em}.elementor-widget-text-editor .elementor-drop-cap{float:left;text-align:center;line-height:1;font-size:50px}.elementor-widget-text-editor .elementor-drop-cap-letter{display:inline-block}<\/style>\t\t\t\t<p><span style=\"font-size: 14pt\">Cashflow is the fuel to your business operations and accounts receivable collection is the station where you fill from, and in world of business that only knows the data language you need to be empowered and well-known of how to read the key performance indicators to measure the collection efforts made for your accounts receivables, the number one source of cash generated from your business.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">In this blog we will take you step by step for every effective KPIs for accounts receivable collection, understanding it, the formulas and calculations, but before we start our journey with the analytics let\u2019s first know what it is and why is it important to know.\u00a0<\/span><\/p><p><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><div id=\"ez-toc-container\" class=\"ez-toc-v2_0_69_1 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#What_is_KPIs_for_Accounts_Receivable\" title=\"What is KPIs for Accounts Receivable?\u00a0\">What is KPIs for Accounts Receivable?\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#8_Effective_KPI_Metrics_for_Accounts_Receivable\" title=\"8 Effective KPI Metrics for Accounts Receivable\">8 Effective KPI Metrics for Accounts Receivable<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#1_%E2%80%93_Days_Sales_Outstanding_DSO\" title=\"1 &#8211; Days Sales Outstanding (DSO)\u00a0\">1 &#8211; Days Sales Outstanding (DSO)\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#How_to_calculate_the_DSO\" title=\"How to calculate the DSO?\u00a0\">How to calculate the DSO?\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#2_%E2%80%93_Collection_Effectiveness_Index_CEI\" title=\"2 &#8211; Collection Effectiveness Index (CEI)\u00a0\">2 &#8211; Collection Effectiveness Index (CEI)\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#How_to_calculate_the_CEI\" title=\"How to calculate the CEI?\u00a0\">How to calculate the CEI?\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#3_%E2%80%93_Average_Days_Delinquent_ADD\" title=\"3 &#8211; Average Days Delinquent (ADD)\u00a0\">3 &#8211; Average Days Delinquent (ADD)\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#How_to_calculate_the_ADD\" title=\"How to calculate the ADD?\u00a0\">How to calculate the ADD?\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#4_%E2%80%93_Average_Collection_Period\" title=\"4 &#8211; Average Collection Period\u00a0\">4 &#8211; Average Collection Period\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#How_to_calculate_the_Average_Collection_Period\" title=\"How to calculate the Average Collection Period?\u00a0\">How to calculate the Average Collection Period?\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#5_%E2%80%93_AR_Turnover_Ratio\" title=\"5 &#8211; AR Turnover Ratio\u00a0\">5 &#8211; AR Turnover Ratio\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#How_to_calculate_the_AR_turnover_ratio\" title=\"How to calculate the AR turnover ratio?\u00a0\">How to calculate the AR turnover ratio?\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#6_%E2%80%93_Expected_Cash_Collections\" title=\"6 &#8211; Expected Cash Collections\u00a0\">6 &#8211; Expected Cash Collections\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#How_to_calculate_the_expected_cash\" title=\"How to calculate the expected cash?\u00a0\">How to calculate the expected cash?\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#7_%E2%80%93_Percentage_of_Credit_Available\" title=\"7 &#8211; Percentage of Credit Available\u00a0\">7 &#8211; Percentage of Credit Available\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#How_to_calculate_the_percentage_of_credit_available\" title=\"How to calculate the percentage of credit available?\u00a0\">How to calculate the percentage of credit available?\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#8_%E2%80%93_Bad_Debt\" title=\"8 &#8211; Bad Debt\u00a0\">8 &#8211; Bad Debt\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#How_to_calculate_the_amount_of_bad_debt\" title=\"How to calculate the amount of bad debt?\u00a0\">How to calculate the amount of bad debt?\u00a0<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#Why_is_KPIs_for_accounts_receivable_important\" title=\"Why is KPIs for accounts receivable important?\u00a0\">Why is KPIs for accounts receivable important?\u00a0<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-20\" href=\"https:\/\/alwadiholding.com\/aw-egypt\/kpi-metrics-for-accounts-receivable-formulas\/#In_conclusion\" title=\"In conclusion:\u00a0\u00a0\">In conclusion:\u00a0\u00a0<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"What_is_KPIs_for_Accounts_Receivable\"><\/span><span style=\"font-size: 36pt\">What is KPIs for Accounts Receivable?\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2><p><span style=\"font-size: 14pt\" data-contrast=\"auto\">The key performance indicator or (Kips) are the metrics that you assess the amount of cash flow incoming to your bank accounts from your sales activities to be able to run your business operation smoothly and making profits, it depends on some major metrics include but not limited days sales outstanding (DSO), ageing of accounts receivable, collection effectiveness index (CEI), bad debt ratio and credit risk.<\/span><\/p><p><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><h2><span class=\"ez-toc-section\" id=\"8_Effective_KPI_Metrics_for_Accounts_Receivable\"><\/span><span class=\"NormalTextRun SCXW2935880 BCX0\" style=\"font-size: 36pt\">8 Effective KPI Metrics for Accounts Receivable <\/span><span class=\"ez-toc-section-end\"><\/span><\/h2><p><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><h3><span class=\"ez-toc-section\" id=\"1_%E2%80%93_Days_Sales_Outstanding_DSO\"><\/span><span style=\"font-size: 18pt\"><b>1 &#8211; Days Sales Outstanding (DSO)<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3><p><span style=\"font-size: 14pt\">First kips for accounts receivable is the (DSO), It refers to the time being taken to collect the receivables starting from the date of making the sale.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Long DSO means that your company usually takes long time to receive or collect the amount of sales revenue from the clients which it has negative effects on your financial stability over the time as you need to meet your corporates financial obligations like the accounts payable.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><h3><span class=\"ez-toc-section\" id=\"How_to_calculate_the_DSO\"><\/span><span style=\"font-size: 18pt\"><b>How to calculate the DSO?<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3><p><span style=\"font-size: 14pt\"><b>Formula<\/b>: Days Sales Outstanding = <i>(Accounts Receivable \/ Net Credit Sales) * Number of Days<\/i>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>P.s:<\/b> to calculate the net credit sales use the following formula as well: <i>(Sales on credit \u2013 Returns and sales Allowances) = Net Credit Sales<\/i>\u00a0<\/span><\/p><p>\u00a0<\/p><p><span style=\"font-size: 14pt\"><b>Example:\u00a0<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Let&#8217;s assume a company has the following information for a specific period:\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Beginning Accounts Receivable:<\/b> $100,000\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Ending Accounts Receivable:<\/b> $120,000\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Net Credit Sales:<\/b> $500,000\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Step 1: Calculate Average Accounts Receivable:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) \/ 2\u00a0\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">($100,000 + $120,000) \/ 2\u00a0\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= $110,000\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Step 2: Apply the DSO formula:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">DSO = ($110,000 \/ $500,000) * 365\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= 0.22 * 365\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= 80.3 days\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><h3><span class=\"ez-toc-section\" id=\"2_%E2%80%93_Collection_Effectiveness_Index_CEI\"><\/span><span style=\"font-size: 18pt\"><b>2 &#8211; Collection Effectiveness Index (CEI)<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3><p><span style=\"font-size: 14pt\">Second kips for accounts receivable is the (CEI) It is an index gives you a percentage, a percentage that shows the how many of your receivables collected during a certain period, this metric measure the effectiveness of your collection performance while the DSO measures how fast these collection actions are done.\u00a0\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><h3><span class=\"ez-toc-section\" id=\"How_to_calculate_the_CEI\"><\/span><span style=\"font-size: 14pt\"><b>How to calculate the CEI?<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3><p><span style=\"font-size: 14pt\"><b>Formula<\/b>: <i>Collection Effectiveness Index = [(Beginning AR Balance + Credit Sales During Period) \u2013 Ending Total AR Balance] \u00f7 [(Beginning AR Balance + Credit Sales During Period) \u2013 Ending Current AR Balance] x 100<\/i>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Breakdown<\/b>:\u00a0<\/span><\/p><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"1\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span style=\"font-size: 14pt\"><b>Beginning AR Balance<\/b>: the amount in outstanding AR the company has at the start of the period.\u00a0<\/span><\/li><\/ul><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"1\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span style=\"font-size: 14pt\"><b>Credit sales during period<\/b>: the total sales made on credit during the period.\u00a0<\/span><\/li><\/ul><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"1\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"3\" data-aria-level=\"1\"><span style=\"font-size: 14pt\"><b>Ending total AR Balance:<\/b> the amount in outstanding AR at the end of the period.\u00a0<\/span><\/li><\/ul><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"1\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"4\" data-aria-level=\"1\"><span style=\"font-size: 14pt\"><b>Ending Current AR Balance:<\/b> the total of all payments received for credit sales made during the period.\u00a0<\/span><\/li><\/ul><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:720,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Example:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Step 1: Calculate the numerator:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">(Beginning AR Balance + Credit Sales During Period) &#8211; Ending Total AR Balance\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= ($100,000 + $200,000) &#8211; $150,000\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= $150,000\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Step 2: Calculate the denominator:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">(Beginning AR Balance + Credit Sales During Period) &#8211; Ending Current AR Balance\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= ($100,000 + $200,000) &#8211; $50,000\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= $250,000\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Step 3: Calculate CEI:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">CEI = ($150,000 \/ $250,000) * 100\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= 0.6 * 100\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= 60%\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><h3><span class=\"ez-toc-section\" id=\"3_%E2%80%93_Average_Days_Delinquent_ADD\"><\/span><span style=\"font-size: 18pt\"><b>3 &#8211; Average Days Delinquent (ADD)<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3><p><span style=\"font-size: 14pt\">The third kips for accounts receivable (ADD) refers to how many days your invoices are delinquent or pass the due date.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Higher ADD means that your clients are very slow in their payments, which would allow you to implement future payment terms to reduce this negative point.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><h3><span class=\"ez-toc-section\" id=\"How_to_calculate_the_ADD\"><\/span><span style=\"font-size: 14pt\"><b>How to calculate the ADD?<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3><p><span style=\"font-size: 14pt\"><b>Formula: <\/b><i>Average Days Delinquent = (DSO \u2013 BPDSO)<\/i>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Breakdown<\/b>:\u00a0<\/span><\/p><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"2\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span style=\"font-size: 14pt\"><b>DSO<\/b>: Refer to the first kips for accounts receivable\u00a0<\/span><\/li><\/ul><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"2\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span style=\"font-size: 14pt\"><b>BPDSO<\/b>: <i>which means Best Possible Days Sales Outstanding = (Current Accounts Receivable \u00f7 Total Net Credit Sales) x Number of Days in Period<\/i>\u00a0<\/span><\/li><\/ul><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:720,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Example<\/b>:\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Step 1: Calculate BPDSO:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">BPDSO = (Current Accounts Receivable \/ Total Net Credit Sales) * Number of Days in Period\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= ($120,000 \/ $500,000) * 30\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= 0.24 * 30\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= 7.2 days\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Step 2: Calculate ADD:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">ADD = DSO &#8211; BPDSO\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= 80 days &#8211; 7.2 days\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= 72.8 days\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Watch the following clip explaining the above metrics perfectly to have a clear vision:\u00a0<\/span><\/p><h3><span class=\"ez-toc-section\" id=\"4_%E2%80%93_Average_Collection_Period\"><\/span><span style=\"font-size: 18pt\"><b>4 &#8211; Average Collection Period<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3><p><span style=\"font-size: 14pt\">The fourth kips for accounts receivable is for calculating the average number of days it takes a business to collect and convert its accounts receivable into cash, you may find it similar to the DSO the first Kips for accounts receivable measurement but the DSO focus on the average days it takes to collect from the day of sales made but the average collection period focuses on the number of days takes to collect the receivable when it became amount due.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><h3><span class=\"ez-toc-section\" id=\"How_to_calculate_the_Average_Collection_Period\"><\/span><span style=\"font-size: 14pt\"><b>How to calculate the Average Collection Period?<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3><p><span style=\"font-size: 14pt\"><b>Formula: <\/b><i>Average Collection Period = 365 Days \u00f7 Accounts Receivable Turnover Ratio<\/i>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Breakdown<\/b>:\u00a0\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Accounts Receivable Turnover Ratio: <\/b>we will explain it in the next metric of kips for accounts receivable, Keep reading!\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Example<\/b>:\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Let&#8217;s assume a company has the following information for a specific period:\u00a0<\/span><\/p><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"4\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span style=\"font-size: 14pt\"><b>Average Accounts Receivable:<\/b> $100,000\u00a0<\/span><\/li><\/ul><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"4\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span style=\"font-size: 14pt\"><b>Net Credit Sales:<\/b> $500,000\u00a0<\/span><\/li><\/ul><p><span style=\"font-size: 14pt\"><b>Step 1: Calculate Accounts Receivable Turnover Ratio:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Accounts Receivable Turnover Ratio = Net Credit Sales \/ Average Accounts Receivable\u00a0\u00a0\u00a0\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= $500,000 \/ $100,000\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= 5\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Step 2: Apply the ACP formula:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">ACP = 365 Days \/ 5\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= 73 days\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><h3><span class=\"ez-toc-section\" id=\"5_%E2%80%93_AR_Turnover_Ratio\"><\/span><span style=\"font-size: 18pt\"><b>5 &#8211; AR Turnover Ratio<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3><p><span style=\"font-size: 14pt\">The fifth kips for accounts receivable is for measuring the performance of your first party or third-party collection team from your clients, meaning measuring the average collection amount on a given period (monthly, Quartey or annually).\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">A high accounts receivable turnover ratio indicates that your collection team is collecting the amounts very fast from the clients.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><h3><span class=\"ez-toc-section\" id=\"How_to_calculate_the_AR_turnover_ratio\"><\/span><span style=\"font-size: 14pt\"><b>How to calculate the AR turnover ratio?<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3><p><span style=\"font-size: 14pt\"><b>Formula: <\/b><i>Accounts Receivable Turnover Ratio = Net Credit Sales \u00f7 Average Accounts Receivable<\/i>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Breakdown<\/b>:\u00a0<\/span><\/p><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"3\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span style=\"font-size: 14pt\">Net Credit Sales = Sales on Credit \u2013 Returns and Sales Allowances\u00a0<\/span><\/li><\/ul><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"3\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span style=\"font-size: 14pt\">Average Accounts Receivable = (Starting Receivables + Ending Receivables) \u00f7 2\u00a0<\/span><\/li><\/ul><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Example<\/b>:\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Let&#8217;s assume a company has the following information for a specific period:\u00a0<\/span><\/p><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"5\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span style=\"font-size: 14pt\"><b>Net Credit Sales<\/b>: $500,000\u00a0<\/span><\/li><\/ul><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"5\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span style=\"font-size: 14pt\"><b>Starting Receivables<\/b>: $100,000\u00a0<\/span><\/li><\/ul><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"5\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"3\" data-aria-level=\"1\"><span style=\"font-size: 14pt\"><b>Ending Receivables<\/b>: $120,000\u00a0<\/span><\/li><\/ul><p><span style=\"font-size: 14pt\">\u00a0\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Step 1: Calculate Average Accounts Receivable:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Average Accounts Receivable = (Starting Receivables + Ending Receivables) \/ 2\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= ($100,000 + $120,000) \/ 2\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= $110,000\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Step 2: Apply the AR Turnover Ratio formula:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Accounts Receivable Turnover Ratio = Net Credit Sales \/ Average Accounts Receivable\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= $500,000 \/ $110,000\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= 4.55\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Wants to dive deeply in this (kips for accounts receivable), the metric of AR Turnover Ratio, you can read our article designed only for this metric: Accounts Receivable Turnover Ratio| Formula and how to Calculate\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><h3><span class=\"ez-toc-section\" id=\"6_%E2%80%93_Expected_Cash_Collections\"><\/span><span style=\"font-size: 18pt\"><b>6 &#8211; Expected Cash Collections<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3><p><span style=\"font-size: 14pt\">The sixth kips for accounts receivable metrics of success is the amount of cash you expected to be having it in a given time, as there are two sources of cash for your corporates which is the immediate cash you have right now when your customers pay on spot and the expected collected cash from your accounts receivable which we are about to measure.\u00a0<\/span><\/p><h3><span class=\"ez-toc-section\" id=\"How_to_calculate_the_expected_cash\"><\/span><span style=\"font-size: 14pt\"><b>How to calculate the expected cash?<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3><p><span style=\"font-size: 14pt\"><b>Formula: <\/b><i>Expected Cash Collections = Cash Sales + Projected Collections from Accounts Receivable<\/i>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Example<\/b>:\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Let&#8217;s assume a company has the following information for the upcoming month:\u00a0<\/span><\/p><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"6\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span style=\"font-size: 14pt\"><b>Cash Sales:<\/b> $20,000\u00a0<\/span><\/li><\/ul><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"6\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span style=\"font-size: 14pt\"><b>Projected Collections from Accounts Receivable<\/b>: $50,000\u00a0<\/span><\/li><\/ul><p><span style=\"font-size: 14pt\"><b>Step 1: Apply the formula:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Expected Cash Collections = $20,000 + $50,000\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= $70,000\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Want new ways to increase your corporate cash flow, book a free consultation now with our Business Development Experts: https:\/\/alwadiholding.com\/aw-egypt\/contact\/<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><h3><span class=\"ez-toc-section\" id=\"7_%E2%80%93_Percentage_of_Credit_Available\"><\/span><span style=\"font-size: 18pt\"><b>7 &#8211; Percentage of Credit Available<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3><p><span style=\"font-size: 14pt\">The seventh kips for accounts receivable is the percentage of credit availability to the clients, the accounts receivable department should be the concern party of allowing or caping the limit of credit amount for clients to buy on based on the metrics shown for their performance of payments and collection.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Check our credit risk advisory service from AW Egypt to have better decisions for your credit management.\u00a0<\/span><\/p><h3><span class=\"ez-toc-section\" id=\"How_to_calculate_the_percentage_of_credit_available\"><\/span><span style=\"font-size: 14pt\"><b>How to calculate the percentage of credit available?<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3><p><span style=\"font-size: 14pt\"><b>Formula: <\/b><i>Percentage of Credit Available = (Total Credit Extended \/ Total Credit Limit) * 100<\/i>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Example<\/b>:\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Let&#8217;s assume a company has a total credit limit of $100,000 and has extended credit to customers totaling $80,000.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Step 1: Apply the formula:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Percentage of Credit Available = ($80,000 \/ $100,000) * 100\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= 0.8 * 100\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">= 80%\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><h3><span class=\"ez-toc-section\" id=\"8_%E2%80%93_Bad_Debt\"><\/span><span style=\"font-size: 18pt\"><b>8 &#8211; Bad Debt<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3><p><span style=\"font-size: 14pt\">The eights kips for accounts receivable are the bad debt or in other words (the write off) the bad debt is the amount of money which your corporate is losing hope in recovering this money, it tends to pass from 3 to 5 years of not having any progress of collecting this money, low bad debt rate is a good indicator for your financial performance as this consider direct loss for your business.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">You can now turn the losses into profits by collecting your bad debts portfolio using our Debt Collection service, check it out from here and send it over to us.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><h3><span class=\"ez-toc-section\" id=\"How_to_calculate_the_amount_of_bad_debt\"><\/span><span style=\"font-size: 14pt\"><b>How to calculate the amount of bad debt?<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3><p><span style=\"font-size: 14pt\">\u201cThere are two common methods to estimate bad debt\u201d\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Formula:\u00a0<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>1 &#8211; Percentage of Net Credit Sales Method:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">This method estimates bad debt as a percentage of net credit sales.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><i>Estimated Bad Debt Expense = Net Credit Sales * Estimated Percentage of Bad Debt<\/i>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Example:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Let&#8217;s assume a company has net credit sales of <b>$1,000,000<\/b> and estimates that <b>2% <\/b>of these sales will be uncollectible.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">\u00a0\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><i>Estimated Bad Debt Expense: $1,000,000 * 2% = $20,000<\/i>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">\u00a0\u00a0<\/span><\/p><ol start=\"2\"><li><span style=\"font-size: 14pt\"><b> Aging of Accounts Receivable Method:<\/b><\/span><\/li><\/ol><p><span style=\"font-size: 14pt\">This method estimates bad debt based on the age of outstanding accounts receivable. Older accounts are typically considered more likely to be uncollectible.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><b>Example:<\/b>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Let&#8217;s assume a company has the following aged accounts receivable:\u00a0<\/span><\/p><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"7\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span style=\"font-size: 14pt\">0-30 days: $50,000 (Estimated bad debt: 1%)\u00a0<\/span><\/li><\/ul><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"7\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span style=\"font-size: 14pt\">31-60 days: $30,000 (Estimated bad debt: 5%)\u00a0<\/span><\/li><\/ul><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"7\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"3\" data-aria-level=\"1\"><span style=\"font-size: 14pt\">61-90 days: $10,000 (Estimated bad debt: 10%)\u00a0<\/span><\/li><\/ul><ul><li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"7\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"4\" data-aria-level=\"1\"><span style=\"font-size: 14pt\">Over 90 days: $5,000 (Estimated bad debt: 50%)\u00a0<\/span><\/li><\/ul><p><span style=\"font-size: 14pt\">\u00a0\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><i>Estimated Bad Debt Expense:<\/i>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\"><i>($50,000 * 1%) + ($30,000 * 5%) + ($10,000 * 10%) + ($5,000 * 50%) = $3,500<\/i>\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Wants to have more information about the aging accounts receivable, have a look on our specialized blog Past Due Account Receivables| AR Aging Report contains examples and templates of AR ageing reports and how to produce it.\u00a0<\/span><\/p><p>\u00a0<\/p><h2><span class=\"ez-toc-section\" id=\"Why_is_KPIs_for_accounts_receivable_important\"><\/span><span style=\"font-size: 36pt\">Why is KPIs for accounts receivable important?\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2><p><span style=\"font-size: 14pt\">It is very important to assess the efforts made by your collection team or collection agency for your corporate sales amount because it is the number one source for your business income is the sales you made on credit with your clients, based on what shown from the kips for accounts receivable you can take immediate actions to correct direction for your corporate collection performance and keep running smooth cash flow.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">Have a look at the designed receivable management service that is tailored based on your industry flow and accounting system.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p><h4><span class=\"ez-toc-section\" id=\"In_conclusion\"><\/span><span style=\"font-size: 24pt\"><b>In conclusion:\u00a0<\/b>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h4><p><span style=\"font-size: 14pt\">We have explored several (key performance indicators) KPIs for accounts receivable, that are essential for managing and optimizing cash flow within a business. Understanding metrics such as Days Sales Outstanding (DSO), Collection Effectiveness Index (CEI), Average Days Delinquent (ADD), Average Collection Period, AR Turnover Ratio, Expected Cash Collections, Percentage of Credit Available, and Bad Debt can provide invaluable insights into the efficiency of your credit and collection processes.\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">You can right now have AW Egypt takes the charge of your whole accounts receivable cycle starting from invoicing till collection and provides you with detailed kips for accounts receivable\u00a0\u00a0<\/span><\/p><p><span style=\"font-size: 14pt\">and the performance and free of charge credit risk advisory service.\u00a0<\/span><\/p><p><span data-contrast=\"auto\"><span style=\"font-size: 14pt\">Contact us now and a have a free consultation right away.<\/span><\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}\">\u00a0<\/span><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>Cashflow is the fuel to your business operations and accounts receivable collection is the station where you fill from, and in world of business that only knows the data language you need to be empowered and well-known of how to read the key performance indicators to measure the collection efforts made for your accounts receivables, the number one source of cash generated from your business.\u00a0 In this blog we will[&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":7920,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_joinchat":[],"footnotes":""},"categories":[165],"tags":[],"class_list":["post-7913","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-aw-receivable-management-service"],"acf":[],"jetpack_featured_media_url":"https:\/\/alwadiholding.com\/aw-egypt\/wp-content\/uploads\/sites\/7\/2024\/10\/Website-Blogs-pics-1-2-1.webp","_links":{"self":[{"href":"https:\/\/alwadiholding.com\/aw-egypt\/wp-json\/wp\/v2\/posts\/7913"}],"collection":[{"href":"https:\/\/alwadiholding.com\/aw-egypt\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/alwadiholding.com\/aw-egypt\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/alwadiholding.com\/aw-egypt\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/alwadiholding.com\/aw-egypt\/wp-json\/wp\/v2\/comments?post=7913"}],"version-history":[{"count":8,"href":"https:\/\/alwadiholding.com\/aw-egypt\/wp-json\/wp\/v2\/posts\/7913\/revisions"}],"predecessor-version":[{"id":7923,"href":"https:\/\/alwadiholding.com\/aw-egypt\/wp-json\/wp\/v2\/posts\/7913\/revisions\/7923"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/alwadiholding.com\/aw-egypt\/wp-json\/wp\/v2\/media\/7920"}],"wp:attachment":[{"href":"https:\/\/alwadiholding.com\/aw-egypt\/wp-json\/wp\/v2\/media?parent=7913"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/alwadiholding.com\/aw-egypt\/wp-json\/wp\/v2\/categories?post=7913"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/alwadiholding.com\/aw-egypt\/wp-json\/wp\/v2\/tags?post=7913"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}