Accounts Receivable Risk
Accounts receivable “risk” corresponding with outstanding accounts, can have a negative impact on a firm’s bottom line. When law firms seek solutions for mitigating accounts receivables risk, benchmark comparison of those assets with key performance indicators or “KPIs” are the answer. KPIs afford a deeper dive into AR records, giving insight into the quality of accounts, as well as the potential risk of accounts to profits over time.
Concentration Ratio and Diversity Index KPIs
KPIs permit a firm to analyze individual accounts relative to the overall AR balance. A standard metric for evaluating AR risk, the concentration ratio is an aggregate comparison of outstanding account balances on invoices. As the concentration ratio of accounts approaches 1, the risk on profits increases. The fewer clients are billed, the greater the risk of losing profits if a client becomes unable to pay. The inverse of concentration ratios is the diversity index. This number shows how many clients you would have after applying for risk.
The Accounting Solution
firmTRAK Solutions accounting metric KPIs offer law firm clients the analytic expertise they require for estimating the value of their accounts receivable assets. Visit firmTRAK Solutions for more information about how your firm can benefit from metric KPIs: https://www.firmtrak.com/
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