Cash management

5 reports every business owner needs to improve cash flow

September 20, 2021
5 reports every business owner needs to improve cash flow

Reporting might not be the sexiest part of owning a business, but it is essential for spotting trends, avoiding pitfalls and planning for the future.  



Most businesses are on top of the basics: sales reports, profit and loss etc. But there are some reporting metrics that businesses overlook to the detriment of their cash flow. Here are five of them.

Debtor days  

Debtor days, sometimes called Days Sales Outstanding or DSO, are a measurement of the time it takes your customers to pay their invoices. Your debtor days average gives a good indication of how effective your company is at chasing invoices, and how good your customers are at paying them.



A high debtor days average is a worrying sign, as it could mean you have aged debt piling up in your sales ledger. This could lead to a strain on your cash flow, forcing you into your overdraft and stifling your growth plans.  

You can view your debtor days report in your accounting software, or you can calculate debtor days yourself using our handy debtor days calculator.

Days Beyond Terms  

On the other side of the coin (pun intended) calculating your Days Beyond Terms (DBT) average will tell you how fast YOU are paying your creditors.

Your Days Beyond Terms average is used by credit bureaus to calculate your credit score. It’s important to keep on top of this number if you want to access credit from other companies or apply for finance.  



Read our article on how to calculate Days Beyond Terms.  

Likewise, before you offer your customers credit you should check their DBT average to see how often they pay their invoices late. If you’re a Satago user, you can view your customers’ DBT average by running a credit search.  

Average debtor balance  

Your average debtor balance tells you the average amount of money you are owed by your customers at any given time. Knowing this number makes it easier to forecast your cash flow. The formula for calculating your average debtor balance is:

(Debtor days/days in the month) x credit sales = average debtor balance

By bringing your debtor days down through good credit control practices, you can reduce your average debtor balance, and get more cash in the bank.  

Weighted average days overdue (WADO)

Weighted average days overdue (WADO) is a metric that gives you an indication of the overall health of your debtor book. It measures the average number of days your invoices are overdue, weighted by their value.  

If you have a high WADO number, it’s likely that you have a lot of high-value aged debt in your sales ledger. In other words, some of your customers owe you a lot of money! Letting aged debt build up puts your business at risk of non-payment, which can threaten your bottom line, especially when it comes to larger debts.  

Read our article on how to calculate weighted average days overdue.  

Customer credit risks

The best way to avoid a buildup of aged debt is to keep an eye on your customer risk profiles. If you’re aware that a customer is at risk of paying your business late, you can react by reducing their credit limit, before it becomes a serious problem for your business.

Satago aggregates your customer data, so you can see the risk-level of your customers based on their credit score and past payment history. You can use this, and the other four metrics in this article, to build a clear idea of the credit control issues that could be restricting your cash flow. Once you’ve identified those issues, you’ll be in the best position to fix them.
 

Satago can help you get on top of debtors with automated invoice chasing and credit risk analysis. Sign up for a free trial today and start improving your cash flow.  

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