How to Fix Your AR: AR Metrics That Actually Improve Cash Flow

Table of Contents

1. The Five AR Metrics That Matter (and What to Do With Them)
2. The 30/60/90 Plan to Improve Working Capital
3. When to Rethink Your Metric Stack

Key Takeaways

• Focus on five key AR metrics: DSO, WADC, CEI, AR Turnover, and ADD.
• Use these KPIs to find 80% of cash flow issues fast.
• Pair metrics with clear credit terms, escalation cadence, and automation.
• A 30/60/90 plan helps stabilize, standardize, and automate AR.
• Automating invoicing, reminders, and reconciliation cuts manual work and DSO.
• Combine metrics for deeper insight—no single KPI tells the full story.

The problem (and why it’s fixable)

Most AR teams are juggling hybrid AR processes across CRM → ERP → banks → spreadsheets. With that fragmentation, it’s easy to chase every fire and still see high DSO, ballooning aging, and frustrated stakeholders.

The good news: a handful of accounts receivable KPIs will spotlight 80% of the issues—and point to the exact fixes. When you emphasize the right AR metrics, then layer in upstream credit/terms, a tight escalation cadence, and automation for the “busy work,” cash moves faster without burning more hours.

From our ebook: The fastest wins come from:

1. Tightening credit/terms

2. Cross-functional escalation

3. Automating invoicing, reminders, cash application, and reconciliation.

The five AR metrics that matter (and what to do with them)

1. Days Sales Outstanding (DSO)

What it tells you: How long it takes, on average, to convert sales to cash.

Watch for: A rising trend vs. last quarter; big swings by customer segment; seasonal spikes.

Action:

• Pair DSO with payment terms adherence: identify customers who “always” slip from Net 30 days to 45/60.
• Trigger your collections cadence:
  • Day 7 reminder → Day 15 “any issues?” check → Day 30 past-due + sales assist → Day 45 call → Day 60 credit-hold review.

Pro tip: DSO is directionally useful but can be distorted by sales mix. Don’t use it alone (see #2).

2. WADC (Weighted Average Days to Collect)

What it tells you: How long you actually collect on, weighted by invoice size (excellent for large accounts).

Use it to: Spot trend breaks on top balances; prioritize work where the cash impact is largest.

Action:

• Build a weekly WADC trend line for your Top-10 customers.
• If WADC creeps up, review collection processes and push earlier sales-assist escalation.

3. Collections Effectiveness Index (CEI)

What it tells you: How effective your collection efforts are within the period.

Simple read: CEI > 90% = strong; < 80% = leaks in cadence, disputes, or resourcing.

Action:

• If CEI dips, run a “root-cause week”: tag every exception (pricing, PO mismatch, milestone evidence, buyer AP backlog).
• Close loops via SOPs/templates so the same issue doesn’t reappear next month.

CEI measures outcomes; your cadence drives them. If the cadence isn’t followed, CEI will tell on you.

4. AR Turnover Ratio

Formula: accounts receivable turnover ratio = turnover ratio net credit sales ÷ average accounts receivable

(aka AR turnover ratio)

What it tells you: How many times you convert receivables to cash in a period.

Use it to: Benchmark AR performance by segment or business line.

Action:

• Compare “net credit sales average accounts receivable” by tier (enterprise vs. long-tail).
• Move the percentage of high-risk accounts to deposits/stricter payment terms and “start small, monitor, then scale.”

5. Average Days Delinquent (ADD)

What it tells you: How far past due invoices are slipping beyond stated terms—an operational health check.

Action:

• If ADD rises while DSO/WADC looks stable, your statements and reminders are late, or disputes are stalling. Tune templates, timings, and owner hand-offs.
  
  

The 30/60/90 plan to improve working capital (without heroics)

Days 1–30 – Stabilize & See

• Publish the baseline: DSO, WADC, CEI, ADD, AR aging buckets.
• Stand up a Top-10 AR Watchlist (balance, last payment, next action owner).
• Launch the baseline cadence (Day 0/7/15/30/45/60).
• Verify bank-change fraud controls (call-backs, separate collections account).

Days 31–60 – Standardize & Assign

• Lock Credit & Terms (default Net 30; deposits for fixed-cost projects).
• Start a monthly AR Council (Controller/CFO, AR, Sales/CS, Ops).
• Make the collection efforts traceable (email/call templates, dispute queue with SLAs).

Days 61–90 – Automate & Accelerate

• Automate invoicing, reminders, cash-app matching; reduce unapplied cash to <2% of AR.
• Add WADC and DSO rolling 90-day views to your BI.
• Publish your first AR Health Scorecard to leadership.

When to rethink your metric stack

• DSO looks fine, cash still lags: You may have a rising percentage of high-risk accounts and hidden disputes. Add WADC + CEI.
• Turnover up, CEI down: You’re booking, but not collecting on time. Tighten cadence and sales-assist.
• High DSO in projects/milestones: Use internal “revenue invoices” to reconcile revenue vs. billing and clean up the exceptions causing delay.

Picking a small set of AR metrics—DSO + WADC + collections effectiveness index + AR turnover ratio + ADD—gives you a precise map to faster cash. Pair the metrics with simple governance (credit/terms), an escalation ladder that includes Sales/CS, and low-lift automation.

Want the play-by-play?

Catch the companion webinar to see how Controllers and CFOs implement this in 90 days—without overextending the team.