1. Define meaningful metrics

It is essential to use the metrics and key performance indicators (KPI) that align with your organisation's business objectives and reflect the main factors impacting your cash flow. They will show you a comprehensive picture of the state of your cash flow and where you can improve it on a regular basis.

Most companies in the food and beverage sector would monitor broad metrics like days sales outstanding (DSO) and days inventory outstanding (DIO). Although calculating the DSO shows you how efficient your credit management is, the number does not show you exactly what is influencing the DSO and in which way. That is why next to metrics like DSO, you should also define more in-depth metrics. Some examples are:

  • The number of invoices you have
  • The (monthly) percentage of outstanding invoices
  • The (monthly) percentage of uncollectible invoices
  • The (monthly) percentage of write-offs
  • The (monthly) percentage of collections of outstanding accounts receivable

If the metrics show a downward trend, you may want to dig even deeper and look at metrics like:

  • The number of discounts offered without approval
  • The number of invoices having standard terms and conditions overridden by sales

Using the right metrics will help you uncover business aspects that truly affect your cash flow. If you add meaningful metrics to your standard reports and update your cash flow forecasts routinely, you will be able to anticipate cash flow problems, spot them early, and address them in time.

Develop sensible credit policies