art of tracking and reporting accounts receivable is keeping an eye on key performance indicators (KPIs). Here are the most valuable KPIs to track for accounts receivable.nnDaily Sales Outstanding (DSO)nnDaily Sales Outstanding (DSO), also called days receivables or average collection period, tells you how long your sales get held up in receivables before you collect on the payment. DSO also provides insight into the performance of your collections team, especially when you monitor it over time.nnIf your DSO keeps going up from month to month or quarter to quarter, there is an issue with collections. DSO is a component of the cash conversion cycle.nnBefore calculating Days Sales Outstanding (DSO), you need to decide which length of time you want to review. The accounting period or accounting term is a crucial part of the equation.nnMost companies review their DSO by month, quarter, or year. Once you decide which accounting term to use, you can apply the other parts of the formula.nnThe formula to calculate DSO is:nn(Current accounts receivable balance ÷ total net credit sales revenue during the accounting term) x number of days in the accounting term = DSOnnAccounts Receivable Turnover RationnThe accounts receivable turnover ratio is an accounting formula that shows how effective your company is at collecting unpaid invoices. It is an essential metric in understanding the value of your A/R department.nnThe turnover ratio helps you understand how long it takes to collect payment for outstanding debt during the accounting term. An accurate understanding of when and how money comes into your business helps predict and plan your cash flow.nnThe accounts receivable turnover ratio formula is:nnNet annual credit sales ÷ Average accounts receivable = Accounts Receivable TurnovernnThe higher the turnover ratio, the more efficient your company is at collecting unpaid debt. However, be careful that your policies are not restrictive that you're losing on sales.nnConversely, a lower ratio doesn't necessarily mean your company is dealing with bad debt. It depends on your specific terms and if your customers need more than 30 days to pay the invoice.nnCollections Effectiveness Index (CEI)nnThe collections effectiveness index tracks the percentage of unpaid invoices a business successfully turns into cash.nnYou want your CEI to be as close to 100% as possible. A lower CEI indicates the company is likely extending credit to customers who aren't creditworthy.nnAverage Days DelinquentnnAverage Days Delinquent (ADD) tracks the number of days past due invoices go unpaid. You want as low of an ADD as possible.nnYou likely need to improve billing and customer communication if your ADD is higher.