What metrics should you use to report payment performance to investors?

2 Days Sales Outstanding (DSO)

Days sales outstanding (DSO) is a metric that shows how long it takes you to collect your receivables from your customers or clients. It is calculated by dividing your average accounts receivable by your average daily sales. A lower DSO means that you collect your payments faster, which improves your cash flow and reduces your credit risk. A higher DSO means that you have more outstanding invoices, which ties up your working capital and increases your collection costs. You should report your DSO to investors to show them how efficient you are at managing your receivables and how you compare to your industry benchmarks.

3 Days Payable Outstanding (DPO)

Days payable outstanding (DPO) is a metric that shows how long it takes you to pay your suppliers or vendors for your purchases. It is calculated by dividing your average accounts payable by your average daily purchases. A higher DPO means that you pay your bills later, which preserves your cash flow and gives you more leverage. A lower DPO means that you pay your bills faster, which improves your supplier relationships and qualifies you for discounts. You should report your DPO to investors to show them how you balance your cash flow and your payment obligations and how you optimize your payment terms with your suppliers.

4 Cash Conversion Cycle (CCC)

Cash conversion cycle (CCC) is a metric that shows how long it takes you to convert your inventory into cash. It is calculated by adding your days inventory outstanding (DIO) and your DSO and subtracting your DPO. A shorter CCC means that you have a faster cash flow cycle, which enhances your liquidity and profitability. A longer CCC means that you have a slower cash flow cycle, which strains your working capital and increases your financing costs. You should report your CCC to investors to show them how you manage your entire payment performance and how you improve your operational efficiency.

5 Payment Performance Ratio (PPR)

Payment performance ratio (PPR) is a metric that shows how well you meet your payment obligations to your lenders or creditors. It is calculated by dividing your total debt payments by your total operating income. A lower PPR means that you have a lower debt burden, which reduces your default risk and interest expense. A higher PPR means that you have a higher debt burden, which increases your default risk and interest expense. You should report your PPR to investors to show them how you service your debt and how you maintain your solvency and creditworthiness.