Making Sense Of Days Receivables Outstanding: Understanding And Utilizing Otc Solutions
Days Receivables Outstanding
With the rapid evolution of financial technologies, organizations have an increasing number of options to grapple with when it comes to effectively tracking their accounts receivables. Few systems provide comprehensive approach to managing full outstanding receivables portfolio, but order to cash solutions are well-suited for analyzing and fortifying at the level of particular accounts.
In this article, we will address the concept of days receivables outstanding; define the advantages that order to cash solutions offer to executives charged with monitoring and maintaining accounts receivables; and present step-by-step guide for utilizing such solution. Let?s begin by examining key terms and concepts pertaining to this arena.
Days Receivables Outstanding: Definition and Overview
Days receivables outstanding (DRO) is metric used to measure the health of an organizations accounts receivables. It is calculated by dividing the average accounts receivable balance of period by total credit isales, and multiplying that number by the number of days in given period.
The lower the DRO, the more efficiently and promptly customers are making payments. spike in DRO could be an indication that there are problems with cash flow, or that certain customers are chronically delinquent with their payments.
Advantages of Order to Cash Solutions for DRO
Given the important role DRO plays, executives charged with managing accounts receivables may be well-served to consider order to cash solutions (OTC) as means of controlling it.
OTC solutions are designed to simplify business processes and automate manual activities in order to increase visibility into the accounts receivables cycle. By seeking out an OTC solution, executives can gain access to secure data about customer accounts, accurately track the amount billed and received, quickly identify areas of potential bottlenecks, and make better decisions with the insights gleaned from 360-degree view of DRO.
How to Use an OTC Solution
If you are interested in utilizing an OTC solution to monitor and maintain DRO, the following steps can help you orient yourself.
Step 1: Identify your goal
Before embarking on the process of finding and implementing an OTC solution, it is important that you take the time to pinpoint exactly what you hope to achieve. This will lend focus and clarity to your decision-making process, so that you can find the right solution to meet the specific needs of your organization.
Step 2: Research OTC solutions
You should always research the OTC solutions on the market before selecting one. Compare features and prices, read customer reviews, speak with individuals who have firsthand experience with the system; these steps will help you determine whether given solution is in line with your objectives, and identify which option is likely to be the best fit for you.
Step 3: Assign team and delegate responsibilities
Unless you have large budget that makes it possible to outsource the implementation of your OTC solution externally, you should assemble an in-house team that can take charge of the planning, implementation, and ongoing use of the system. Identify key personnel who can manage the various facets of the program, and delegate tasks and operational responsibilities accordingly.
Step 4: Outline and test
You may be tempted to skip this step and move quickly into implementation, but proceeding with an outlined plan greatly increases the chance of success. Before you get started, you should outline the tasks that must be performed and the steps to be taken to reach your goal. Providing detailed timeline of how long it ishould take to set up the system, design the workflow, and integrate it with existing systems makes it all the clearer how you will move forward, and also helps identify areas that must be addressed.
Once your plan is in place, you can begin testing the system. This step can occur on as small or large scale as you see fit, and should include many levels of testing (or review, if you have opted to outsource the program?s implementation). Testing your OTC solution will allow you to identify any errors that require correction and make changes before going live.
Step 5: Go live
When you are satisfied that you have well-thought out plan, and that both your system and team are ready, it is time to go live. Depending on the scope of your project, you may elect to roll out the solution in phases — for example, you may opt to begin by focusing on the accounts receivable portion of the system, and then move on to the accounts payable aspects afterward.
Step 6: Maintain and monitor
Finally, once you have gone live with your OTC solution, it is important to remain vigilant and continue to track its effectiveness. Regular review and maintenance of the system, as well as monitoring performance, can help you identify any potential problems ahead of time, and take measures to ensure that your accounts receivable cycle remains smooth and efficient.
Wrapping Up
At the end of the day, DRO should be monitored closely, as it can be indicative of an organizations overall performance. OTC solutions provide an effective and comprehensive means of making that happen, though navigating the process of setting and implementing them can be complex. Nevertheless, with appropriate planning and bit of assistance, executives can successfully employ OTC solutions to track and improve their accounts receivable cycle.
