A Measure of Success: Employing Metrics to Improve Customer-to-Cash Practices
In relation to cash forecasting there are a number of metrics that can be used
to account for process delays, cash likelihood and conversion efficiency. Generally
speaking the key working capital ratio of DSO (Days Sales Outstanding) based
on an exhaust calculation method is still a solid method to measure overall
receivables performance. However, additional measurements are needed to drive
sub-processes and increase the accuracy of cash forecasting.
If you start your cash forecasting with the sales funnel, a weighted measurement
for your expected forward order book should be utilised. This should be based
on the likelihood of conversion and stage in the sales process. The time delay
in the Quote to Order process also needs to be taken into account. Some key
The application of metrics for the Order to Invoicing process depends on your
industry, especially when utilising these to build a cash-forecasting model.
The measurement should focus on delivery accuracy and delays that impact the
progress towards invoicing and cash conversion. Some key measurements are:
Here the focus to drive receivables performance and cash forecasting should
be on the measurement of risk variance, customer payment performance and dispute
First, as in the Quote-to-Order process adjustments should be made for the
variation in customer and country risk. For example, in some countries approx.
80% of customers with a credit score of four end in bankruptcy, thereby impacting
your cash forecast. Some key measurements are:
Secondly, historic payment performance provides vital intelligence for accurate
cash forecasting. Payment behaviour can be predicted by analysing the variance
and trend of performance at customer level. Some key measurements are:
Thirdly, the likelihood of disputes and their cycle times gives additional
insight into process performance and customer payment behaviour. The larger
the value in dispute and the longer the cycle times, the less likely you are
to collect. Some key measurements are:
While all measurements are useful to manage the customer-to-cash process, the
tricky part is to integrate the right indicators into a cash-forecasting model.
Also, measurements are just half the story, the other is governance. A corporate
credit policy should outline process rules and the way indicators are measured
to ensure accurate interpretation.