Late payments are on the rise, and businesses are feeling the pinch. According to CreditorWatch’s Business Risk Index, September 2024 saw the highest level of late payments since March 2021. The rate of B2B payments overdue by more than 60 days jumped 21.4% year-on-year and 7.9% since the start of the year. 

These figures highlight a worrying trend: more companies are struggling to get paid. In today’s economic climate, keeping a close eye on accounts receivable or A/R performance has become essential. Businesses that do not track their metrics risk cash flow bottlenecks and increased debt conflicts, which incur interest costs that eat into profit margins.

So, what exactly should businesses even be tracking to see how well they are doing?

A/R Performance Metrics

There is no one way to measure a business’s accounts receivable performance; instead, there are five common indicators that provide a comprehensive view of how well an organisation is meeting its key performance indicators (KPI): 

• Days Sales Outstanding (DSO)

Days Sales Outstanding quantifies the average number of days an organisation takes to collect payment after a credit sale. A/R teams often use this metric because it offers a clear snapshot of collection speed. 

DSO= Average Accounts ReceivableTotal Credit Sales×Number of Days in Period

A lower DSO generally indicates that customer payment is timely and that cash flows consistently. Meanwhile, a higher DSO could point to delays in payment or inefficiencies in the collection process. 

The strength of DSO hinges in its ability to highlight collection patterns over time. When benchmarked against an organisation’s payment terms, it can reveal whether customers are consistently paying late or whether internal practices are causing delays. 

• Collection Effectiveness Index (CEI)

The Collection Effectiveness Index offers a performance-based perspective. It measures how successful an organisation has been in collecting receivables that were due during a specific period. Unlike DSO, which focuses on timing, CEI assesses how much of the total collectible amount has actually been recovered, regardless of when the original sale occurred.

CEI= Beginning Receivables+Credit Sales-Ending Total ReceivablesBeginning Receivables+Credit Sales-Ending Current Receivables×100

Entrepreneurs may consider CEI as a measure of their business goals concerning team efficiency and productivity because a high CEI indicates strong performance by the collections team. In case of a low CEI, businesses may consider commission only debt collectors to bridge gaps in inefficiencies or gaps in collection efforts. 

• Average Days Delinquent (ADD)

Average Days Delinquent provides insight into the average number of days customers take to pay their invoices past the due date. While DSO includes both timely and late payments, ADD isolates the delinquent ones, making it a valuable behavioural metric. It helps businesses identify patterns in late payments and assess the real impact of overdue receivables on cash flow.

ADD=DSO-BPDSO

In the formula, BPDSO stands for best possible DSO. It can be computed using the equation:

BPDSO=Current Accounts ReceivableTotal Net Credit Sales×Number of Days

Consistently high ADD values may suggest that customers are not adhering to payment terms or that the credit control team is not following up promptly. It can guide adjustments to credit policies or customer vetting processes. 

• A/R Turnover Ratio

The Accounts Receivable Turnover Ratio measures how frequent an organisation collects its average receivables during a given period. As a staple in many A/R processes, it is a valuable indicator of how efficiently the business is managing its credit terms and collecting payments. The higher the ratio, the more frequently receivables are being collected, which usually implies strong cash flow and good credit management.

ART=Net Credit SalesAverage Accounts Receivable

This metric is particularly useful for long-term analysis and comparing performance across financial periods. When businesses experience a declining turnover ratio, it may indicate a need to revisit customer credit limits or payment terms. Although leniency may promote customer satisfaction, healthy boundaries should be established to avoid abuse of these terms.

• Percentage of Receivables Overdue

This metric highlights the proportion of total accounts receivable that is currently overdue. It provides a simple but critical measure of risk exposure and is useful for prioritising collection efforts. Organisations often break down this metric further into ageing brackets (e.g., 30, 60, 90+ days overdue) to gain a more detailed view of where the problems lie.

PRO=Overdue ReceivablesTotal Accounts Receivable×100

Monitoring the percentage of overdue receivables enables organisations to take action before debts become uncollectible. It also serves as valuable input when assessing customer creditworthiness or deciding when to outsource delinquent accounts to a debt collections agency. 

Improve Your A/R Performance with Bluechip Collections

A/R performance metrics help businesses identify the problem before they scramble to solve it. However, it is one thing to know what to solve and another to actually sort it out. This is where a debt collection agency Perth steps in.

At Bluechip Collections, improving your A/R performance starts with proactive, strategic support tailored to your business. With our proven track record and expert recovery strategies, we don’t just chase late payments—we help prevent them from becoming long-term issues. Fill out our contact form or contact us at 1300 462 114 to schedule a consultation.