News & Resources
The Million Dollar Question: How can ONE KPI significantly help you improve your cash flow?Ron Noden July 14, 2020
There is no silver bullet for running your Architecture and Engineering business. What if you could monitor and improve just one Key Performance Indicator (KPI) and improve your cash flow by as much as $1,000,000 per month? Would that be worth measuring and managing for you?
Improving your Day Sales Outstanding (DSO) is critical to improving cash flow, and DSO is described in multiple ways with multiple formulas – but let’s simplify to the core as DSO is the measurement from the time the work is completed until the time payment for the work is collected. DSO it is made up of two main time components that deserve to be measured:
- Time to Invoice (TTI)
- AR Aging (from time of invoice to time of collection, preferably an AR weighted KPI)
The latter item, AR Aging, is an area that all of us are used to working on. The need for process and accountability in AR Management and Collections is imperative. Also important is developing a reliable process to improve collections. But today, let’s look at how we can address the Time to Invoice (TTI). Four primary issues crop up to add days to the TTI measurement:
- A non-automated process that delays the gathering and processing of invoice information
- Inadequate field or work systems to get the right information gathered in a timely manner
- Single month billing – waiting to bill work until the first two weeks of the following month can cost double-digit additions to TTI days
- Waiting for exceptions to be resolved before billing
Measuring TTI is as simple as using your Vision® or Vantagepoint® reporting system to identify the exact date of work completion and the date of the invoice. Improving this number trending over time can have huge paybacks. To make sure you are reducing your days and improving your cash flow, you may want to:
- Begin measuring TTI as soon as you can, reviewing it weekly and monthly for trends (makes a great dashboard item)
- Automate your invoicing processes with solutions such as EleVia Electronic Invoicing to reduce TTI days
- If you have a field team or project team, directly integrate their work with the accounting reporting system – a single point of entry as much as possible
- Automate the process of finding and resolving exceptions and issues by using software that helps accounting and project management teams use the same information
- Measure response times for project management and others, to help them achieve improved results
What have we seen happen? By applying these strategies, many organizations have improved their TTI by 5-8 days by utilizing improved processes and automated simple improvements. By using EleVia Electronic Invoicing, one of our clients shared that by shaving off seven days, they reduced their total TTI (and therefore DSO) by 9.1%. That amounted to well over $1.5M in improved cash flow.
Time to Invoice as a KPI may be able to help you improve cash flow quickly. Measuring it and managing it will help you make that happen.