Cash Collection Stats You Should Share With Investors

If you want to build a healthy, cash-driven business, you need to track more than revenues.

You should track cash collection metrics and share them with all key stakeholders, including your internal team as well as investors and advisors.

The reality is that revenue reports can lie. They demonstrate how many customers you have on the books and how much you’re charging each month… but they don’t say anything about how much money you actually have in the bank.

Until now, the norm has been to report revenues to investors and other stakeholders to show off company growth. But that’s changing.

In the near future, investors are increasingly going to want to see accounts receivable metrics to gauge your company’s cash collection efficiency and cash flow.

So, you should be saying something about cash collection to investors.

Here’s why — and how — to keep investors in the loop about your cash collection activity. 

Need help calculating your top A/R metrics? Have a look at our free spreadsheet.

Why Account Receivable Metrics Are Important to Investors

One thing that never lies is the cash in the bank account.

You can send an invoice anytime — and you can just as easily follow up with a credit note. In the meantime, the invoice on the books creates reported revenue that boosts your monthly recurring revenue (MRR).

That may sound nefarious, but your MRR can be artificially inflated other ways, too, unintentionally.

Say a customer asks to cancel their subscription, and your company’s first step in such a case is to connect them with someone on the sales team to attempt to retain them as a customer. While these conversations are happening, the customer isn’t paying, but they remain on the books as a subscription — contributing to your MRR.

If that customer ends up canceling, that could be months of recorded revenue you never collect, skewing your MRR.

This “flexibility” with how you report revenue-related metrics — along with an increased risk of bankruptcy after the COVID-19 crisis — is why investors are going to be asking for cash flow metrics more often.

Revenue metrics don’t tell investors how much cash your company has in the bank, how healthy your company’s finances are or how happy your customers are with your products or service.

Strong cash collection metrics are a sign of happy customers and healthy financial management, regardless of your rate of growth.

In the future, it’s likely that more investors will be asking for those metrics, thus it's advisable to include them in your pitch deck.

Which Account Receivable Metrics Should You Report to Investors?

You’re probably used to reporting revenue metrics like MRR, annual recurring revenue (ARR), average contract value (ACV) and customer acquisition costs (CAC).

But which of your cash flow metrics do you want to divulge?

Here are the accounts receivable metrics investors will want to know:

• Cash collection ratio: Calculate this by looking at your cash collected divided by MRR — it’s the ratio of reported revenue you collect in a given month.

• Days Sales Outstanding (DSO): This is the average number of days it takes your company to collect payment on an invoice. 

• Billing cohorts: These are groups of invoices you issued within the same month. Tracking billing cohorts lets you compare your cash collection efficiency from month to month and keep an eye on trends.

Keep in mind for each of these metrics that an investor will want to see not only your most recent metrics but also how they’ve evolved over time.

How to Know Whether Your KPIs Are on Track

Before you share metrics with an investor, you should understand what those numbers are going to convey.

For the key metrics above, here’s what you might aim for to share healthy finances and strong collections:

Cash collection ratio: Aim for at least 110% cash collection ratio to give your company a longer runway. This indicates you’re actually collecting more in a month than the revenues you’re reporting. 

How do you accomplish this? You can collect more cash than the revenues you record when you get paid upfront. This means a healthy amount of cash in the bank to back up a strong MRR.

DSO: Aim to keep your DSO at less than 30 days to keep your cash from being tied up in overdue invoices.

Billing cohorts: As you track billing cohorts, you want to see a positive trend of more and more invoices being paid within 30 days. Ideally, 100% of your invoices should be collected within 30 days, so the closer you move toward that number, the better the trend.

These specific numbers might vary from business to business, but this gives you an idea of what to aim for. The key is to track these metrics over the long term to keep an eye on how your cash collection is improving over time.

How to Stay on Top of Your Cash Flow Metrics

If you want to report an accurate picture of your company’s finances to investors, you’ll need to keep up two sets of documents.

The first is the profit and loss statement (P&L) — the one you’re probably used to sharing. It shows the invoices you’ve issued as revenue, and the costs of running the business.

The second is your cash flow statement. This uses the accounts receivable KPIs listed above — cash collection ratio, DSO and billing cohorts — to demonstrate your cash collection efficiency over time. 

To stay on top of these reports, you could hire someone who’s dedicated to accounts receivable to guarantee they’re focused on collections and capturing these metrics. Or you could use accounts receivable software that automates the process for you.

At Upflow, we offer solutions for cash collection systematization and reporting. Through our system, you can set up automatic, personalized billing reminders to aid in your collections process and payment collection. 

We also help you track KPIs with simple financial reports you can easily share with your sales, finance and business development teams to keep a clear line of communication across the company.

That makes the numbers easy to pull up when an investor asks for them. And our systematized cash collection solutions help increase your efficiency to ensure investors are happy with the numbers they see.

Revenue reports and MRRs can be misleading for your internal teams and your investors because of the many ways you can inflate reported numbers.

But the cash flow statement never lies.