KPI Context – Accounts Receivable

Accounts Receivable as a KPI that is of equal interest to both Sales and Finance teams. At a high level, this is a bridge linking the Sales, Operations and Finance activities at a high level. Each team base their work on a specific document object and carry out activities. The primary object for Sales Team is the Opportunity, which is handed over and converted as Sales Order when Operations team takes over.
KPI_Context_ARThis activity can also be seen as the typical handshake between a CRM and ERP systems. Once an Invoice is raised against goods or services provided based on the Sales Order, the Customer is notified with detailed list of items and net amount to be paid, which is also accounted in the books under Accounts Receivable.

Accounts Receivable indicates the Total Amount to be received by the organization from Customers. This is a time context sensitive measure which is mandatory during reporting.

It includes only amounts in the form of Customer Revenue or Sales generated through normal business operations. (E.g, Assume a company is selling a fork lift truck in its warehouse. This transaction is NOT termed as accounts receivable, instead classified as extraordinary item or something similar)

Accounts Receivable is monitored by Sales teams because in many organizations the onus of collecting payments from customers fall under their purview. Finance teams have interest because this is a key component of Balance Sheet and Cash Flow statements.

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AAPL P&L Statement from Yahoo Finance

In the example Balance Sheet from Apple Inc, the line item “Net Receivables” includes all the components related to Accounts Receivables are included. Based on reporting context either the receivables only from Customers (Debtors) or net receivables are reported.

There are several KPI’s that are related to Accounts Receivable area. KPI measures the performance of Accounts Receivable management team in several perspectives i.e Amount, Days, Float, Invoices, Customer, Efficiency etc.