We are tired of looking at our bank balance on Friday to know if we had a good week. How do we build a scorecard that acts as an early warning system for our cash flow three to four weeks before the money actually leaves or enters our accounts?

Question

Tyler Smith · Accepted Answer

To build a scorecard that acts as an early warning system for cash flow, you must stop tracking trailing financial metrics and start tracking the leading activities that directly precede cash movement. In most businesses, cash flow issues are born weeks before they show up in the bank account.

Start by mapping your cash cycle. Identify the exact operational activities that trigger billing and collections. We recommend adding these three highly predictive weekly metrics to your leadership team scorecard:

- Outbound billing triggers: This is the number of project milestones completed or contracts signed that are ready to be invoiced. If this number drops, your accounts receivable will drop two weeks later.
- Days sales outstanding of unbilled work: This tracks work that has been completed but has not yet been invoiced. It highlights administrative bottlenecks that delay cash in-flow.
- Accounts receivable collections activity: Instead of tracking total accounts receivable, track the number of collection calls or automated payment reminders sent to clients with past-due balances.

By tracking these leading activity-based metrics on your weekly scorecard, you will see a cash crunch coming thirty days in advance. This gives your leadership team plenty of time to run the EOS® issue resolution process known as IDS® to solve the problem before it hits your bank account. If the leading activities are green, the cash will follow.