If you are a CFO or head the finances of a company with a recurring revenue model, knowing the indicators shown below by heart is the difference between anticipating liquidity issues or discovering them when there is no longer room for manoeuvre.
Why should ARR and Collections be monitored together?
Annual Recurring Revenue (ARR) measures the business committed in invoices (subscription fees, flat rates, one-off payments, etc.). Collections, on the other hand, measure what actually enters the cash flow. The gap between the two is where problems hide: overdue accounts, protracted commercial disputes, deficient invoicing processes… a list that every company knows well.
A CFO who manages ARR in isolation, without cross-referencing it with collection indicators, operates with an incomplete view of the company. This stresses cash flow and can eventually damage relationships with suppliers. Maintaining coherence between both metrics is a discipline that the CFO must institutionalise.
What are the essential ARR KPIs?
1. Net New ARR
New ARR + Expansion ARR – Churn ARR
The most honest indicator of real growth. A positive and increasing Net New ARR is the sign that the business model is functioning structurally.
2. Churn Rate
Lost ARR / Initial ARR *100
One must distinguish between the customers who leave and the revenue lost through that churn, as the loss of a high-revenue customer will have a greater impact than many small customers. If this KPI exceeds 5–8% per annum, it is a red flag regarding the company’s viability.
3. Net Revenue Retention (NRR)(
(Initial ARR + Expansion – Contraction – Churn) / Initial ARR * 100
NRR measures whether the existing customer base grows or contracts on its own, predicting sustainable growth. An NRR exceeding 100% indicates that expansions and upselling more than compensate for cancellations. Recent studies show that B2B companies with this KPI above 110% grow at a faster pace with less pressure on new customer acquisition. What is your company’s NRR?
What are the essential Collections KPIs?
1. Days Sales Outstanding (DSO)
(Accounts/ Sales) * Period days
Measures the days the company takes to convert its sales into cash. A gradually increasing DSO is an indicator of deteriorating portfolio quality or problems in the billing process. Ideally, DSO should be below 45 days. What is your company’s DSO?
2. Accounts Receivable Ageing
(Days invoice is open * Invoice amount)/ Invoice amount
Ageing allows for the identification of what percentage of accounts receivable is at real risk of being uncollectible. A healthy portfolio should have more than 80% of its balance under 30 days. If the +90 days bracket exceeds 10%, immediate intervention is required.
3. Collection Effectiveness Index (CEI)
Collections / (Opening Balance + Sales – Final Blance) * 100
Measures the effectiveness of the collections team in recovering open debt. A CEI close to 100% indicates that practically everything that falls due is collected. Below 80%, the collection process must be reviewed as it has significant leakages. What is your company’s CEI?
4. Cash Conversion Cycle (CCC)
DSO – DPO
The cash conversion cycle integrates sales and payments to suppliers into a single metric of working capital efficiency; however, if it is a production company, inventory must be incorporated (DSO + Inventory – DPO). Reducing the CCC is directly equivalent to freeing up cash without the need for external financing.
How to integrate ARR and Collections into an executive dashboard?
Effective management of these metrics requires a single panel where Net ARR, NRR, DSO, and accounts receivable ageing are viewed in a consolidated manner. A good executive dashboard should answer three questions in under 30 seconds:
Are we growing in net terms?
How long does it take for the money to arrive?
Where is the collection risk concentrated?
Platforms such as Yndika calculate and alert on deviations in these indicators as they connect daily with the ERP and billing gateways, eliminating the dependence on manual spreadsheets that often introduce errors and delays in decision-making.
How often should accounts receivable ageing be reviewed?
In companies with short sales cycles or high customer volumes, ageing should be reviewed weekly. For companies with higher value contracts and lower volume, a fortnightly review is sufficient, provided there is an automated alert system for invoices exceeding 30 days past due, such as Yndika.
What should be done when ARR grows but DSO also rises?
This is a risk signal that requires immediate attention. ARR growth may be driven by commercial agreements with laxer payment terms or by customers with a higher propensity for late payment. As mentioned in the tip, the first step is to segment DSO by customer to identify if the problem is widespread or concentrated in a specific profile.
What is Net Revenue Retention and why does it matter more than Gross ARR?
NRR measures how much revenue the company maintains and grows from its existing customer base, excluding new acquisitions. A high NRR indicates that the product retains value and that customers are expanding their usage. It is considered by investors and analysts as one of the most predictive indicators of long-term financial sustainability.
