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My key KPI: Date of the invoice and date of payment

26th Feb 2018
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My key KPI
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Welcome to ‘My key KPI’, a new weekly content series where we ask CFOs and FDs what metrics and measures they use to drive their businesses forward.

The aim is to understand how different finance professionals, across a broad array of industries and sectors, use data to inform their decision making.

This week's edition is rather special: AccountingWEB veteran Tom123 tells us about his key KPI. 

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My key KPI: Date of the invoice and date of payment

As far as fixtures on AccountingWEB go, Tom123 is up there. When he signed up on January 28, 2001, Wikipedia was only thirteen days old and a Texan scion named George W Bush had just been sworn in as the US president.

Things have changed, but his membership of AccountingWEB has endured. These days Tom123 is the finance director of a medium sized manufacturing firm. “My principal concern is usually the current assets that I control, i.e. debtors and stock.

“Creditors will look after themselves, in that suppliers will keep track of whether I owe them money – so I don't need to worry too much about ‘overlooking’ a creditor. A debtor, conversely, is unlikely to remind you he owes you money.”

So Tom monitors the time taken to pay sales invoices. “For each invoice that is paid, I can see the time in days between the date of the invoice and date of payment,” he said. “I then get an average for each customer, and an average over all. This will be by month, quarter, and year.”

He sticks this information into pivot tables connected to live data by API so it’s refreshed in seconds. “My average last year was 56 days, an improvement on the 58 days the year before. All my customers are blue chip manufacturing, so they do tend to push the limits out.”

From April this year, large companies and LLPs will have to publicly report twice a year on their payment practices and performance, including the average time taken to pay supplier invoices.

Ostensibly that’d be good news for an FD like Tom, but he’s concerned about the legislation’s unintended impact: “Take the example of a customer who I offer 30 days to who pays in 45 to 60.

“I’m generally happy with that, but his report looks bad – so, to make his reports look better he wants me to increase my ‘official’ terms to 60 days. He gets to look the good guy, while in actual fact paying me more slowly.”

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By andy.partridge
04th Mar 2018 10:41

If your terms are 30 days I can not understand why you are happy with payment between 45-60. That’s all.

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