The CFO role is evolving day-after-day, driven by the growing need for data-centric decision-making. Today’s new CFOs must go beyond traditional accounting—managing risk, planning for growth, and ensuring overall financial health are now essential duties.
Ensuring you are tracking the right Key Performance Indicators (KPIs) is the first step to setting yourself up for success. Understanding which metrics to prioritize will help you to measure, and make the most impact on your new role, and business.
In this blog, learn the 6 Essential AR Metrics that you’ll need to understand in your new role. These metrics not only offer deep insights into your company's financial health but also empower you to keep a close eye on cash flow, ensure timely collections on accounts receivable, and spot potential financial pitfalls before they escalate.
Dive into these crucial KPIs and explain how to track them, and then how you can build out your own AR dashboards to share with key management stakeholders, so that you can provide the AR metrics that lead to better decision-making and improved financial performance.
The role of the CFO is no longer confined to managing the company’s finances—it has evolved into a strategic leadership position that encompasses risk management, forecasting, and decision-making. KPIs empower CFOs by offering clear metrics that quantify how well a company is meeting its goals, especially in areas like accounts receivable, cash flow, profitability, and debt management.
Make Data-Driven Decisions: By tracking real-time financial data, CFOs can spot trends and make informed decisions that benefit the company’s financial health.
Reduce Risk: KPIs related to cash flow, accounts receivable, and debt provide early warnings of potential liquidity issues.
Manage Company Growth: Metrics like gross profit margin and operating cash flow ratios help assess whether the company is growing sustainably.
Gone are the days when CFOs focused purely on cost management. Today, they must drive long-term strategy, align financial performance with business goals, and improve shareholder value. Tracking KPIs provides the foundation for making these strategic decisions.
Venture Workspace, a coworking space provider in South Africa. Before automating its accounts receivable (AR) processes, Venture Workspace had over 25% of its payments coming in late. This caused cash flow issues that threatened operational efficiency. By leveraging KPIs such as Accounts Receivable Turnover and implementing Paidnice's AR automation tools, they saw late payments drop to under 5%, improving their financial stability and freeing up resources for growth.
Tracking the right KPIs is crucial for maintaining financial health and growth. Below are some of the most important KPIs CFOs should monitor regularly.
Accounts Receivable Turnover measures how efficiently a company collects its receivables, showing how often receivables are converted to cash within a given period.
High accounts receivable turnover reflects a company's ability to manage credit risk and collect debts efficiently, which improves liquidity.
A low turnover ratio could indicate issues with collection, leading to cash flow problems.
In setting up an AR dashboard, CFOs can automatically track this KPI in real time, monitoring overdue payments, aging invoices, and customer behavior. With tools like Paidnice, companies can streamline the collection process, automatically sending reminders and applying late fees to overdue invoices.
New CFO Tip: To improve accounts receivable turnover, ensure consistent follow-ups and offer incentives like early payment discounts.
DSO measures the average number of days it takes for a company to collect payments after a sale has been made.
A long DSO can be a red flag for cash flow management. It suggests that the company is not collecting payments on time, which could result in a cash flow crunch.
A low DSO, on the other hand, reflects efficient receivables management and faster collections.
The finance team at Bustle Studios have significantly improved their DSO by automating payment reminders and applying late fees through tools like Paidnice. This enabled them to reclaim hours spent on manual follow-ups and improve their cash flow.
Cash flow forecasting predicts future cash inflows and outflows based on current performance. It’s one of the most critical KPIs for CFOs, helping them anticipate liquidity needs and avoid cash flow issues.
Accurate cash flow forecasting ensures that companies can meet their operational and financial obligations without needing external funding. It also helps businesses plan for expansion or investment opportunities.
New CFO Tip: CFOs can use real-time dashboards to monitor current cash flow and compare it to forecasted figures. This way, they can adjust their forecasts based on up-to-date data, making them more accurate. Automation tools like Paidnice provide CFOs with live cash flow insights that enhance forecasting accuracy.
The Debt to Equity Ratio measures a company’s financial leverage by comparing its total liabilities to its shareholder equity.
This KPI provides insights into how a company is financing its operations.
A high ratio may indicate that the company is relying heavily on debt to finance growth, which can lead to solvency issues if not managed properly.
A lower ratio suggests that the company is less reliant on external financing.
New CFO Tip: Monitoring this KPI helps new CFOs balance the use of debt and equity to ensure that the company is not over-leveraged, avoiding unnecessary financial risk.
The Gross Profit Margin is the percentage of revenue remaining after subtracting the cost of goods sold (COGS). It indicates how efficiently a company is producing and selling its goods or services.
This KPI helps CFOs assess the profitability of the company’s core business operations.
New CFO Tip: Higher margins indicate that the company is effectively managing production costs and pricing strategies.
The Operating Cash Flow Ratio measures a company’s ability to cover its current liabilities with cash generated from its core business operations.
This KPI ensures that the company can sustain day-to-day operations without relying on external funding sources like loans or credit.
New CFO Tip: A healthy operating cash flow ratio indicates that the company can meet its short-term obligations, keeping it financially stable.
As a new CFO, staying on top of your companies accounts receivable is crucial to maintaining a healthy cash flow. However, manually managing AR data can be cumbersome and prone to errors. This is where an AR dashboard comes into play—offering CFOs a real-time, visual snapshot of critical AR metrics such as overdue invoices, payment trends, and customer payment behavior.
Building an AR dashboard can provide ne CFO's with several essential benefits:
Real-Time Insights: Immediate access to key metrics like overdue payments, aging invoices, and collection trends. CFOs can make swift decisions based on the most up-to-date information.
Integration with Existing Automation: With integrated solutions like Paidnice, AR dashboards come direct out of the box, and integrate with all of your existing tooling. In a single glace automatically track due dates, send reminders, and apply late fees. This removes manual intervention, freeing up valuable time for finance teams.
Better Decision-Making: Data is visualized in easy-to-read charts, enabling CFOs to spot patterns and identify high-risk customers more efficiently.
Tracking how effective your Accounts Recievable collection process is will help you keep tabs on the health of your cash flow and ultimately, your company’s liquidity. By measuring these 3 advanced AR metrics, new CFOs can pinpoint inefficiencies in the billing and collection process and take corrective actions to improve cash flow.
This metric assesses the overall effectiveness of your AR process. It compares the total amount collected over a specific period with the amount that was due.
A high CEI indicates that your collection efforts are effective.
A low CEI signals that there may be issues with your receivables process.
CFOs can use CEI data to evaluate whether collection efforts need to be strengthened or streamlined.
For example, if your CEI is consistently below 100%, it may be time to review credit policies, streamline follow-up reminders, or implement stricter payment terms.
ADD measures the average number of days invoices are overdue, providing insight into the timeliness of your collections.
If ADD is rising, CFOs should investigate whether payment reminders are being sent promptly or if stricter late fee policies need to be enforced. By tracking this metric, companies can identify which customers habitually pay late and apply necessary escalations.
Similar to ADD, this metric tracks how many days past the due date it takes to collect an overdue invoice. DBT helps CFOs measure the overall efficiency of their collection efforts.
CFOs can use DBT to identify problem customers who regularly exceed payment terms. Automating follow-ups through Paidnice can significantly lower DBT by sending consistent reminders and applying penalties.
To fully capitalize on collection AR metrics, CFOs must move beyond tracking and use them to implement changes. For example:
Pro Tip: Make sure your AR dashboard allows segmentation of customers by payment behavior so you can customize follow-ups and escalation policies for different customer groups.
New CFOs who successfully leverage these KPIs often employ specific best practices to ensure that data is accurate, actionable, and aligned with business goals. Here are several best practices to help CFOs get the most out of their KPIs:
Save yourself hours of manual work by automating tasks related to AR management and KPI tracking. Tools like Paidnice offer fully automated AR solutions, enabling finance teams to send payment reminders, apply late fees, and generate customer statements with minimal intervention. Automation ensures that collections stay on track, even during busy periods.
For each KPI, new CFOs should establish clear benchmarks based on industry standards or company goals. For instance, setting a benchmark for DSO (e.g. 30 days) helps CFOs measure whether the company's credit and collection policies are effective. Comparing KPI performance against these benchmarks allows CFOs to spot underperformance early and take corrective action.
These KPIs should be reviewed monthly or quarterly to ensure they remain relevant as the business evolves. Regular reviews allow CFOs to adjust their metrics and targets in response to changing market conditions, cash flow needs, or customer behavior. For example, if cash flow forecasting consistently shows gaps between expected and actual results, it may signal a need to fine-tune forecasting models.
Consolidating KPI tracking into a centralized AR dashboard ensures CFOs have real-time access to all relevant financial metrics. This improves decision-making and allows CFOs to respond to issues quickly. For example, with tools like Paidnice, CFOs can integrate data from Xero or QuickBooks to automate AR management and visualize key metrics on an intuitive dashboard.
One size doesn’t fit all when it comes to reporting. CFOs should customize KPI reports based on the audience—whether it’s the board, executives, or the finance team. Detailed reports can include data-driven insights into AR metrics, while higher-level reports may focus on overall financial health.
Ultimately, KPIs are more than just numbers—they are powerful tools for driving financial success. By tracking the right KPIs, CFOs can align their financial strategy with broader business goals, ensuring sustainable growth and robust cash flow management.
For CFOs focused on improving accounts receivable performance, leveraging tools like Paidnice provides automated solutions that streamline processes, reduce manual intervention, and ensure timely payments. This enables CFOs to not only maintain financial health but also contribute meaningfully to their company’s strategic objectives.
If you’re ready to transform your AR processes and unlock the power of real-time KPI tracking, Book a demo with Paidnice today!.
