Over the last month, we have had many of our Summer ACE Peer Group meetings that we run in partnership with our friends at McFarlin Stanford. It's always a great time to reconnect, prioritize, and get a game plan for success.
At each of our ACE Meetings, we review financial metrics and numbers that landscaping companies need to track and manage. By establishing trends for those numbers and comparing results, our ACEs can see exactly how they are performing against themselves and their fellow members and in turn where they need to get better.
One number that we are seeing slip, even in high-performing companies, is their "Accounts Receivable" balance. Companies have been flush with cash the last two years with helpful injections of PPP and ERC money, and as a result they might not be "on top" of their collections like they should be.
An AR problem can be a collection issue, billing issue, contract issue, or a client satisfaction issue and it's important to know which category you fall into if you see yourself struggling to collect quickly on invoices.
This metric tells you the average number of days that a customer invoice is outstanding before it is collected. In our industry, anything below 30 days is great—the more you trim this number, the faster you have cash on hand and, as we all know, cash is king. Especially in times of uncertainty.
Ultimately, how we track and measure this number is referred to as "Accounts Receivable Days Outstanding" which measures approximately how many days it takes you to collect an average invoice.
Days Receivable Calculation
To calculate yours, take your sales number for a trailing 12-month time period and divide it by 365 (Sales / 365) to get a number called "Average Daily Sales" and then divide that number by your Accounts Receivable balance using the same end date as the period. This will give you a number of days.
Some of our ACEs have gotten theirs down as low as 15 days, often by accepting credit cards and assigning one person in the company to really drive and own the collections process. Collections is a process like anything else.
So this week, if you find yourself with an accounts receivable opportunity or issue, talk to your team to uncover what the root cause is. Monitor this number and empower someone to own the process to improve collections. If you are doing well collecting, reward your team with the kudos they deserve and encourage continued support on your process.
Have a great week and we will talk to you next week!
Vince Torchia
Vice President
The Grow Group
P.S. We are adding new members to our ACE Peer Groups this fall! Sign up for ACE Discovery + the ACE Summit to join us in Banff, AB, CA on November 7-10, 2023 to test-run our ACE Peer Group Program and meet and network with our current ACE Peer Group members during our annual ACE Summit.
With more than 140 companies doing more than $1B in combined annual revenue in our peer group program, there is no better place to network with other success-minded landscape pros and move your business forward.