This document outlines five best practice AR metrics that companies should track: 1) Average days to complete a new credit review, 2) Average days delinquent, 3) Auto-cash hit rate, 4) Average resolution cycle time for deductions, and 5) Credit to cash process cost as a percentage of revenue. It discusses each metric in detail and provides best practice examples for achieving world-class performance. The document also describes how recurring reporting should focus on these key metrics to provide insight while minimizing reporting time and cost, while separate analytics reports are needed for deeper data analyses to identify process flaws and improvement opportunities.

1. Five Best Practice AR
Metrics You Should Track
December 17, 2020

2. • Introduction
• Objectives of Reporting
• The Power of One
• Five Best Practice AR Metrics
• Customer Success Story
• Conclusion
• Questions
Agenda

3. Controlling demand for reports is difficult. 100% automation of standard reports and
quick query capability is way to limit time spent on reporting.
Beware the “Reporting Downward Spiral
• First month of sub-par results elicits special reports/analytics requests
from Management. Result: 4 work days spent reporting (vs. the normal 2),
and 16 days devoted to improving performance
• Second month of sub-par results increases special requests. Result: 6 days
of reporting, 14 days of driving improvement
• Less time devoted to driving results leads to third month of sub-par results
3
Introduction

4. Objectives of Reporting KPI’s (Key Performance Indicators)
To measure the performance of the management of the revenue stream
and Accounts Receivable asset:
• effectiveness
• efficiency
To provide a level of insight into operations and challenges – not deep
dive Analytics published on monthly basis
• To minimize the time and cost of reporting
4
Objectives of Reporting
You cannot manage what you don’t measure

5. A Single Consolidated View of the Total AR Asset is Imperative
• Global scope
• Every penny of every dollar
• Every open transaction for every customer
• If you have it, “what’s the big deal?”
• If you don’t, you know the problems it causes
5
The Power of One
Anything less than the “Power of One” is a disadvantage.

6. The Critically Important Five AR Metrics
• Credit: Average Days to Complete a New Credit Review
• Collections: Average Days Delinquent
• Cash Application: Auto-Cash Hit Rate
• Deductions: Average Resolution Cycle Time
• Credit to Cash Process Cost as a % of Revenue
6
Five Best Practice AR Metrics

7. Credit: Average Days to Complete a New Credit Review
• Definition: Elapsed time from receipt of Credit Application from a prospective
customer to establishment of Credit Limit
• Critically important in an economy where many companies are suffering with
depressed revenue. Speed in onboarding new customers is essential.
• Hackett World Class performance is 2 days
• Key Best Practice: on-line Credit Application with digital signature, automated
incorporation of Credit Bureau & bank and trade references
7
Five Best Practice AR Metrics

8. 8
Collections: Average Days Delinquent
• Definition: Actual vs. Best Possible DSO gap
• Best Possible DSO: if every penny of every invoice was paid on due or early
pay discount date
• Not affected by granting extended terms
• Hackett World Class performance is 4 days
• Key Best Practice: automated, customized Collection Prioritization logic
which drives Collector activity and automation of contacts
Five Best Practice AR Metrics

9. Cash Application: Auto-Cash Hit Rate
• Definition: % of Customer Payments Applied to Open Invoices Automatically
• Payments posted only at account level and those posted manually excluded
• Automation displaces manual effort and drives productivity and accuracy
• Hackett World Class performance is 75% - hit rates above 90% have been
achieved
• Key Best Practice: AI driven, automated extraction of remit data from multiple
sources in multiple formats and application to open invoices, enhanced by
machine learning
9
Five Best Practice AR Metrics

10. Deductions: Average Resolution Cycle Time
• Definition: Average elapsed time to resolve a Deduction from Creation
date (value-weighted and exclude automatic-small-balance-write-offs).
Resolution is removal from AR ledger or delegation for Collection.
• Short resolution times reflect high productivity and promote increased
recovery of denied deductions
• Hackett World Class performance is 7 days
• Key Best Practice: AI driven, automated, deduction creation and
assignment of reason code, via extracting data from customer vendor
portals and remit information from multiple sources in multiple
formats (remit advice, debit memos, etc.)
10
Five Best Practice AR Metrics

11. 11
Five Best Practice AR Metrics
Credit to Cash Process Cost as a % of Revenue
• Definition: Total cost (salary, benefits, supplies, allocated IT and
Facilities/overhead) of Credit, Invoicing, Collections, Cash
Application and Deductions processing, as a % of Net Revenue.
• Cost of these functions will vary with scale of revenue. Expression
as a % of revenue ensures comparability
• Hackett World Class performance is 0.041%
• Key Best Practice: AI driven, automated processing eliminating 70
– 80% of manual and semi-manual work in these five functions.

12. Analytics – Process Improvement
Recurring Reporting is not the vehicle for deep data analyses. Separate, less frequent
Analytics reports are. Common examples are:
• Deduction and Dispute analysis by root cause provides data to:
• Pinpoint Order to Cash process flaws to be corrected
• Enable cost/benefit estimates for corrective actions
• Analysis of credit memo reason codes will serve the same purpose.
• Analysis of order release function by Credit can be useful. Calculate orders held as % of
total orders reviewed. If % is low, it may mean orders are being held unnecessarily because
of screening criteria that are too strict (credit limits too low) and/or they flag customers
whose orders would be held in only extreme cases (i.e., National Accounts). This wastes
staff time and delays order fulfillment.
Root cause data is the key to process improvement

13. $2 Billion
Receivables *
85%
Current AR
100%
Customer Touch
15 days
DSO Reduction
91%
Dispute Cycle
Reduction
THE EMAGIA
EXPONENTIAL IMPACT
118 M
Working Capital
Savings
Pharma Manufacturer Improves Cash flow
Overview: Global leader is providing integrated services, superior drug delivery
technologies and manufacturing solutions. Over $2.5 B in revenues and 11,000
employees who support over 7,000 products for over 1,000 customers all around the
world.
Digital OTC Solution: Emagia AI-powered Digital Receivables Platform – Credit,
Collections, Deductions, Cash App, Analytics & Customer Payments Portal.
• Deployed as a single unified global order-to-cash platform over 4 ERP systems -
Oracle, JD Edwards, MYOB and Change Point
• Client focus of strong working capital management and reducing cost achieved
• Configurable Collections Strategies – dynamic modification based on parameters
• High Efficiency Collector Workbench
• Automated Reminder and Dunning Letters
• Collaborative Workflow Based Resolution – alerts, reminders and escalations
• Detailed Audit Trails
• Root Cause Analysis e.g. dispute management
DSO reduction of 15 days. $118 million Working Capital savings

14. 14
• There are many KPI’s focused on AR Management results
• The challenge is to enable monitoring of key activities and results without
devoting too much time and resource to reporting
• The Five Best Practice AR Metrics we have identified will accomplish the
reporting objective
Conclusion
Remember: Analytics fuel process improvement

15. Questions

16. If you have any questions or comments
about this session, please let us know
in the chat box or write to us at
info@emagia.com
Next Emagia Master Class Session
Topic: Strategic AR Management
Date & Time: Thursday, 14th January, 10AM PST
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Orders
Credit
Cash
Application
Collections
Deductions
Payments
Invoicing