Introduction to AR Performance Tracking

In the previous module, we discussed the importance of building an effective and scalable Accounts Receivable (AR) process. However, setting up a solid AR foundation is just the beginning — true financial agility comes from continuously tracking performance.

Far from a nice-to-have, closely monitoring how your AR process performs over time gives businesses data-backed insight that accelerates collections and reduces bad debts. It’s essential for making smarter, faster decisions, strengthening working capital and optimising cash flow, ultimately keeping your business in the black.

As a result of this process intelligence, your business can:

Ensure steady cash flow: Timely collections mean your business can cover operational costs and fuel growth without scrambling for funds.
Reduce bad debts: The sooner you spot overdue invoices, the sooner you can chase them down (before they decide to ‘forget’ they owe you money).
Strengthen customer relationships: A well-managed AR process helps you resolve disputes smoothly, making for happier clients and more reliable payments.
Improve decision-making: Data-driven insights from tracking AR performance provide better forecasts, improved risk management, and smarter strategic planning.
Identify collection inefficiencies: If your invoices are dragging their feet or your follow-ups are lagging, tracking AR performance can highlight these delays and help you get back on track.
Enhance reporting & compliance: Accurate AR tracking ensures your financial reports are spot-on and compliant with regulations – a win-win for peace of mind.

AR Metrics: the Secret Sauce to Tracking AR Performance

If AR performance tracking is the strategy, metrics are the tools that bring it to life. They provide the real-time data needed to spot risks, measure collection efficiency, adjust credit policies, and streamline operations. With the right metrics, you can forecast cash flow more accurately and support business growth — all while making sure your CFO doesn’t meltdown.

Now, let’s roll up our sleeves and dig into the key AR metrics that truly make a difference for businesses. By the end of this chapter, you’ll not only understand how to calculate these metrics — you’ll know how to leverage them to supercharge your financial decision-making and keep your business running like a well-oiled machine. Ready to dive in? Let’s go! 🚀

⚠️ Disclaimer: Industry benchmarks and insights provided in this chapter are general guidelines and may vary across sectors. It's crucial to compare your company's performance against relevant industry standards. These averages can change over time due to economic shifts, market trends, and sector-specific factors. For the most accurate and current information, it is advisable to consult up-to-date industry reports or financial professionals.

Days Sales Outstanding (DSO)

Days Sales Outstanding (DSO) is like your business's “waiting game” clock – it measures the average number of days it takes to collect payment after a sale is made. The lower the DSO, the faster your business gets paid, and the healthier your cash flow. Think of it as your business’s efficiency report card for collecting payments.

According to a J.P. Morgan report, the Cash Conversion Cycle (CCC) for S&P 1500 companies increased by 2.4 days in 2023, with 67% of these companies experiencing longer DSOs. This trend highlights the need for businesses to actively monitor and optimise their collection processes to maintain healthy cash flows.

EXAMPLE

N&N Ski Shop wants to assess their payment collection efficiency. Over the past 30 days, they reported: 
- Total AR: $50,000
- Total Credit Sales: $200,000

Calculation: DSO = (50,000 / 200,000) × 30 = 7.5 days

This means that, on average, the company collects payments 7.5 days after a sale for its wholesale channel, indicating a low DSO.

Industry Insight

Low DSO (<15 days): Indicates strong collection practices and efficient credit management. Common in businesses with short payment cycles or strict credit terms, such as SaaS companies with monthly billing models.
Moderate DSO (30-45 days): Industry standard for many B2B companies. While not necessarily a concern, there may be room for improvement in collections.
High DSO (60+ days): Potential red flag indicating delays in collections, cash flow risks, or lenient credit policies. Businesses should investigate causes such as customer creditworthiness, invoicing inefficiencies, or weak follow-up procedures.

Best Practices for Improving DSO

Set clear payment terms and communicate them upfront.
Send timely reminders for overdue invoices.
Consider offering early payment discounts or implementing stricter policies for high-risk customers.

By regularly tracking DSO, businesses can pinpoint trends, improve cash flow, and streamline their accounts receivable processes.

Accounts Receivable (AR) Turnover Ratio

Debtors Turnover – measures how efficiently a company collects outstanding receivables over a specific period. Think of it as the speedometer 🏎️ for your business’s cash collection process.

This efficiency ratio shows how quickly and smoothly your company converts receivables into cash. It’s also a key metric for financial modelling.

EXAMPLE

N&N Ski Shop reports:
- Net Annual Credit Sales: $1,000,000
- Opening AR: $90,000
- Closing AR: $110,000

Calculation:
- Average AR = (90,000 + 110,000) ÷ 2 = $100,000
- AR Turnover Ratio = 1,000,000 / 100,000 = 10

An AR turnover ratio of 8 means the company is converting its accounts receivable into cash 10 times a year. By dividing the number of days in a year (365) by the AR turnover ratio (10), we get 36.5 days. This indicates that, on average, it takes 36.5 days to turn receivables into cash.

Industry Insight

Construction: The average AR turnover ratio in the construction industry is approximately 6 times per year. This is due to longer payment cycles common in construction projects, which may involve complex contracts and milestone-based payments.
Manufacturing: In the manufacturing sector, the AR turnover ratio typically averages around 7 times per year. Factors influencing this ratio include supply chain efficiency, the nature of the products, and the customer credit policies in place. Manufacturing businesses with longer production cycles or those relying on bulk orders may experience lower turnover ratios compared to companies with shorter production timelines.
Food and Beverage Distributors: The AR turnover ratio for food and beverage distributors tends to range from 10 to 14 times per year. This higher ratio is due to the often shorter payment terms and faster-moving inventory characteristic of the industry, where products are sold on quicker turnaround times and to a wider range of customers.
General Average: Across various industries, an AR turnover ratio of approximately 7.8 is considered the general benchmark. However, this can differ significantly depending on the industry’s characteristics, credit terms, and customer base.

Best Practices for Improving AR Turnover Ratio

Implement clear credit policies and payment terms.
Assess customer credit risk.
Follow up regularly on outstanding invoices.
Offer online payments and multiple payment methods.
Offer early payment discounts to encourage prompt settlements.
Monitoring the AR turnover ratio helps businesses identify collection trends and optimise cash flow management.

Average Days Delinquent (ADD)

ADD measures the average number of days payments are overdue, beyond the due date. Think of it as the "lateness tracker" ⏰ for your invoices!

It’s a crucial metric to evaluate how well your credit and collection processes are performing – and whether it's time to step up your efforts before those overdue payments get too comfortable.

EXAMPLE

N&N Ski Shop reports:
- DSO: 29 days
- Best Possible DSO: 10 days

Calculation: ADD = 29 - 10 = 19 days

Industry Insight

B2B Sectors (e.g., Construction, Manufacturing, Wholesales): These industries often experience higher ADD due to longer payment terms and project-based sales. The average ADD typically ranges from 30 to 60 days. Long-term contracts, larger invoices, and complex projects can contribute to slower payments, especially if customers require extended time to assess the deliverables before making payments.
Retail and SaaS Companies: These industries generally experience lower ADD due to quicker payment cycles and subscription-based models. Retail businesses usually deal with shorter credit terms, while SaaS companies often collect payments upfront or on a recurring basis. In particular, they often aim for an ADD closer to 10-15 days to maintain consistent cash flow.
Other Factors Influencing ADD: Industries such as Healthcare and Education may see varying ADD trends. Healthcare providers often have longer payment cycles due to insurance reimbursements, while educational institutions might face slow payments from other educational institutions or corporate clients due to contractual terms and lengthy approval processes. These sectors can typically have ADDs in the 40-90 days range.

Best Practices for Managing ADD

Regularly review customer payment histories to identify potential risks.
Strengthen credit policies to minimise overdue payments and improve cash flow.
Implement automated payment reminders to encourage timely collections.
Offer early payment discounts or enforce stricter late payment penalties.

By closely monitoring ADD, companies can maintain better control over cash flow and reduce the risk of financial instability caused by slow-paying customers.

Collections Effectiveness Index (CEI)

Collections Effectiveness Index (CEI) measures a company’s efficiency in collecting its outstanding receivables during a specific period.

A higher CEI percentage means you’re collecting those payments like a pro, helping maintain liquidity and making sure your operations run like a well-oiled machine.

Think of it as a measure of your cash collection hustle – if you’re rocking a high CEI, it means your team is on point, efficiently converting credit sales into cash and keeping that cash flow smooth.

EXAMPLE

N&N Ski Shop reports:
- Beginning AR: $80,000
- Credit Sales: $200,000
- Ending AR: $50,000
- Ending Current AR (not yet due): $30,000

Calculation: CEI = [(80,000 + 200,000 – 50,000) / (80,000 + 200,000 – 30,000)] × 100 = 92%

This CEI score of 92% indicates that N&N Skip Shop has been very effective at converting its credit sales into cash, as 92% of the outstanding receivables have been successfully collected or are still within due dates.

Industry Insight

B2B Sectors (e.g., Construction, Manufacturing, Wholesales): In industries with longer payment cycles like construction or manufacturing, the CEI score can fluctuate due to project-based sales and longer credit terms. A CEI of 80% is considered good for these sectors.
Food and Beverage Distributors: These businesses tend to have shorter collection periods, so maintaining a high CEI of around 90% or above is a good indicator of effective collections.
Retail & SaaS: Retailers and SaaS companies, which generally experience faster payment cycles, may aim for a CEI score above 90%, reflecting their quicker conversion of receivables into cash. For SaaS companies, managing collections becomes more important as subscription models often rely on recurring payments.

Best Practices for Improving CEI

Automate payment tracking and reminders.
Segment customers by creditworthiness.
Follow up with slow payers and set clear expectations.
Offer incentives for early payments.

By regularly tracking and improving the CEI, businesses can optimise their cash flow, reduce credit risk, and enhance financial stability.

Bad Debt Ratio

Bad Debt Ratio is the financial “red flag” 🚩 that helps you see where your credit policies might be going off-track! This metric is key for understanding how much of your credit sales are at risk of not being paid.

By comparing bad debts (those amounts you won’t be seeing again) to total credit sales, businesses can get a better grasp on their credit risk and its financial impact. s especially critical for companies that offer credit, as it highlights the portion of revenue that could be lost to non-payment, which, when written off, can significantly impact financial performance. Keeping an eye on this ratio helps ensure your credit strategy is both smart and sustainable.

EXAMPLE

N&N Ski Shop reports:
- Bad Debts: $5,000
- Credit Sales: $200,000

Calculation: Bad Debt Ratio = (5,000 / 200,000) × 100 = 2.5%

This means that 2.5% of the company’s credit sales are expected to become uncollectible, which might be acceptable for businesses with higher-risk clientele or longer payment terms. However, for a 100% retail business, this would prompt a review of their collection policy.

Industry Insight

Construction: The long project timelines and large contracts often result in extended payment cycles, leading to higher bad debt ratios. Project-based sales and the reliance on client-specific financing contribute to a ratio in the 5% to 7% range. It’s crucial for companies in this industry to implement robust contract terms and regular payment follow-ups to manage risk.
Manufacturing: Similar to construction, the manufacturing industry often deals with large contracts and longer payment terms, which can contribute to higher bad debt ratios. Manufacturers with high-value products may experience ratios of 5% to 6%, especially when payments are linked to project milestones or long-term orders. Proper risk assessment and credit management processes are essential to mitigate potential losses.
Wholesale & Distribution: In wholesale and distribution, companies may experience higher ratios due to longer payment cycles with large retail clients or resellers. With the typical practice of extending credit for bulk purchases, ratios can climb, especially if clients are struggling with cash flow.
B2B Sectors: In general, companies operating in B2B markets, such as technology solutions or industrial equipment suppliers, may face higher Bad Debt Ratios due to the nature of large transactions and customised payment terms. These industries may see ratios around 5-7%, though they still need to stay vigilant in managing customer credit risk.

Best Practices for Managing Bad Debt Ratio

Pre-screen customers: Conduct credit checks during onboarding and before offering credit.
Review credit limits: Adjust limits based on payment behavior.
Tailor payment terms: Offer longer terms for reliable customers, shorter for high-risk clients.
Monitor payment trends: Track payments and adjust strategies.
Tighten credit policies: Limit credit for customers with poor histories.
Offer shorter terms: Minimize delinquencies by shortening payment windows.
Use credit insurance: Protect large transactions with insurance or guarantees.

By regularly monitoring the Bad Debt Ratio, businesses can adjust their credit policies and collections strategies to maintain a balance that minimises risk and ensures financial stability.

AR Aging Report Analysis

An AR Aging Report is like your business’s crystal ball 🔮, showing which customers are slacking on their payments. This nifty report helps determine who needs a friendly nudge and can seriously boost your collection efforts. It categorises outstanding invoices by how long they’ve been overdue.

Typical AR Aging Report Categories

Current: Invoices not due yet (a sigh of relief for now).
30-60 Days Past Due: Time to start keeping an eye on these folks.
60-90 Days Past Due: Now we’re in serious territory. Follow-up time!
Over 90 Days Past Due: Sound the alarm! These need immediate attention

The analysis is crucial for businesses to identify slow-paying customers, assess potential cash flow issues, and prioritise collections. It allows businesses to track trends in late payments, ensuring that overdue amounts are tackled promptly.

EXAMPLE

N&N Ski Shop reviews its AR aging report and discovers that 30% of receivables from their wholesale clients are over 60 days overdue, while only 10% of receivables from retail customers are outstanding for more than 30 days. This indicates that the wholesale channel is facing a slower payment cycle, which could impact cash flow. The company decides to prioritise collections efforts in the wholesale sector and review credit terms for these clients to reduce the risk of bad debt and improve liquidity.

Industry Insight

Construction & Manufacturing: These industries often have longer payment cycles due to large projects and custom orders. AR aging reports may show significant amounts in the 30-60 day and 60+ day buckets, as clients delay payments until project milestones are met or goods are received.
Wholesale & Distribution: Longer payment terms are common in wholesale and distribution businesses, often leading to significant amounts in the 30-60 day buckets. Companies in this sector might offer payment terms based on customer volume, increasing risk of delayed payments.
Tech & Telecom: Tech and telecom companies can experience slower payments from customers due to contract complexities and disputes. AR aging reports for these sectors often show a mix of 30-day and 60+ day receivables, particularly for large corporate clients.
Retail: Retailers generally see shorter aging periods due to high cash sales or quick payment cycles. However, for businesses offering credit to customers, AR aging reports may show a concentration in the 30-day bucket, with slower payments from high-ticket items or larger customers.
SaaS & Subscription-Based Models: These industries often have lower aging, with customers paying on time via automated systems. AR aging reports typically show few accounts in the 30+ day buckets, as recurring payments minimize the risk of delayed payments.

Best Practices for Managing AR Aging

Segment customers by payment behavior: Use an automated AR system to classify customers based on payment history.
Implement stricter follow-up protocols: Set reminders for overdue payments and engage with customers promptly.
Introduce early payment discounts or penalties for overdue payments: This can motivate customers to pay faster.
Regularly monitor AR aging reports: Focus on receivables that are past due for more than 60 days.

Regularly reviewing your AR aging helps identify late payments early, improve cash flow, prioritise collections, monitor credit risk, and ensure accurate financial reporting.

Cost of AR (Carrying Cost of Credit Sales)

Cost of AR is like the hidden expense of carrying a shopping cart full of unpaid invoices – it’s the financial price you pay for offering credit to customers.

The higher the cost, the more likely you're carrying around a burden that is tying up your cash and resources. If your cost of AR is too high, it’s a red flag that your credit policies or collections strategies may need some serious tweaking to avoid that financial burden.

This metric takes into account the interest on borrowed funds, administrative costs to down those elusive payments, and the risk of bad debts that may never be settled. Think of it as a tally of all the behind-the-scenes work that goes into managing those receivables.

EXAMPLE

N&N Ski Shop reports:
- AR Balance: $100,000
- Annual Carrying Cost Rate: 20%
- Number of Days Outstanding: 30

Calculation: Cost of AR = ($100,000 × 20%) × (30 / 365) = $1,644

Thus, the Cost of AR for N&N Skip Shop is $1,644 for the 30 days their receivables remain outstanding.

Industry Insight

Cost of AR varies significantly across industries due to differences in payment cycles, credit terms, and customer types. Here's a breakdown of typical benchmarks:

Manufacturing and Construction: 5% – 10% of total AR. These industries typically have longer payment cycles due to large contracts and project-based work, resulting in higher carrying costs.
Wholesale Distribution: 3% – 6% of total AR. Wholesale businesses tend to offer longer payment terms, which can result in higher carrying costs due to delayed payments, especially for larger transactions.
Professional Services (Legal, Consulting, etc.): 5% – 8% of total AR. Professional services typically deal with larger contracts and project-based billing, resulting in longer payment terms and higher carrying costs.
Retail: Benchmark Range: 1% – 3% of total AR. Retail businesses usually have short payment cycles, particularly with cash or card-based transactions, leading to lower carrying costs.

Best Practices for Managing Cost of AR

Assess creditworthiness: Offer credit terms based on customer risk profiles.
Improve efficiency: Automate manual AR processes to cut administrative costs.
Review credit policies: Regularly update credit terms based on customer behaviour and trends.
Early payment incentives: Offer discounts to encourage early payments and reduce AR balances.

By keeping a close eye on the Cost of AR, businesses can proactively manage their financial resources, reduce unnecessary expenses, and improve overall cash flow management. Adjusting collection strategies and credit policies in response to industry trends can help reduce the carrying cost of outstanding receivables.

Dispute Rate and Resolution Time

Dispute Rate and Resolution Time are your business's "dispute detectives" 🕵️‍♂️, shining a light on how well your team handles customer complaints and discrepancies.

The Dispute Rate tracks the percentage of invoices that customers challenge – whether it's a pricing issue, delivery hiccup, or a product mismatch. Resolution Time, on the other hand, measures how fast your team solves these problems and gets things back on track.

Keeping an eye on both metrics is key to spotting inefficiencies in your invoicing or collections process. A high dispute rate or slow resolution time can cause cash flow headaches, but nipping these issues in the bud can smooth out your payments and keep your business running like a well-oiled machine!

EXAMPLE

N&N Ski Shop reports:
- Disputed Invoices: 10
- Total Invoices: 1,000
- Total Days to Resolve Disputes: 50

Calculation:
- Dispute Rate = (10 / 1,000) × 100 = 1%
- Resolution Time = 50 / 10 = 5 days

Industry Insight

Manufacturing & Construction:

Dispute Rate: 5-10% due to the complexity of project-based sales and long contracts.
Resolution Time: 10-30 days, driven by the intricate details of projects and multiple stakeholders.
Combined Insight: Manufacturing and construction industries face the highest dispute rates and longest resolution times due to the complexities of large-scale projects and extended timelines.

B2B / Wholesale:

Dispute Rate: 3-5% due to more complex contracts and transactions.
Resolution Time: 7-14 days, often tied to intricate contract details.
Combined Insight: Higher dispute rates and longer resolution times are typical, as B2B transactions often involve more detailed agreements and customised pricing.

Retail:

Dispute Rate: 1-2% due to simpler transactions.
Resolution Time: 2-5 days for straightforward issues.
Combined Insight: Retail generally has lower dispute rates and faster resolution times, thanks to clear pricing and simpler billing systems. The majority of complaints would be resolved via return and refund policies.

SaaS & Subscription:

Dispute Rate: 2-3%, mainly stemming from billing issues.
Resolution Time: 3-7 days, as disputes usually revolve around subscription renewals and service charges.
Combined Insight: SaaS companies have moderate dispute rates, but their quick resolution times help minimise cash flow disruptions, particularly with recurring billing models.

Best Practices for Managing Dispute Rate & Resolution Time

Improve invoice accuracy: Continuously review and enhance your invoicing process to minimise errors and prevent disputes.
Ensure clear communication: Provide clear terms, conditions, and itemised invoices to avoid misunderstandings.
Act swiftly on disputes: Set a target to resolve disputes within 3-5 days to maintain cash flow and customer satisfaction.
Leverage automation: Use automated systems to track disputes, improving visibility and speeding up resolution.

Tracking Dispute Rate and Resolution Time is crucial for maintaining healthy cash flow and improving operational efficiency by resolving payment issues quickly. It also helps foster stronger customer relationships and ensures that financial risks, such as bad debts, are minimised.

AR-to-Sales Ratio

AR-to-Sales Ratio is like a financial radar, measuring how much of your hard-earned revenue is still sitting in receivables instead of flowing into your cash reserves.

It’s an essential metric for understanding how efficiently your business is collecting payments – too high, and it might be time to rethink your collection strategy, too low, and you’re probably doing a great job keeping cash coming in!

EXAMPLE

N&N Skip Shop reports:
- Total AR: $100,000
- Total Sales: $500,000

Calculation: AR-to-Sales Ratio = (100,000 / 500,000) × 100 = 20%

This indicates that 20% of the business's sales are currently outstanding, tied up in receivables.

Industry Insight

The AR-to-Sales Ratio can vary significantly across industries due to differing payment cycles, credit terms, and customer bases. Below are some industry-specific insights and benchmarks:

Manufacturing and Construction: 25% - 50%. These industries typically experience longer payment cycles due to large contracts and project-based sales, meaning a higher AR-to-Sales ratio is common. Extended credit terms and delayed payments from contractors or clients can push this ratio higher.
Wholesale Distribution: 15% - 25%. Wholesale businesses may face higher AR-to-Sales ratios due to longer payment terms extended to customers, particularly in B2B transactions. The ratio could vary depending on industry-specific factors such as order size and customer payment practices.
Telecommunications: 10% - 20%. Telecom companies typically have a relatively lower AR-to-Sales ratio as most customers pay on a regular, subscription basis. However, payment delays or bad debt can still affect the ratio, especially for corporate clients with large outstanding balances.
Professional Services (Legal, Consulting, Accounting, etc.): 20% - 40%. Professional services often see a higher AR-to-Sales ratio due to project-based work with varying timelines for payment, especially if clients are on long payment terms or the work is dependent on client invoicing.

Best Practices for Managing AR-to-Sales Ratio

Strengthen credit policies: Assess customer payment history and adjust credit limits accordingly.
Monitor AR closely: Track aging receivables and follow up promptly on overdue invoices.
Optimise payment terms: Align terms with customer reliability; shorten for high-risk accounts.
Encourage early payments: Offer discounts or incentives for prompt payments.
Automate collections: Use invoicing and payment reminders to speed up cash flow.
Review contracts: Ensure credit terms align with industry norms and business needs.

By focusing on improving the AR-to-Sales Ratio, companies can enhance liquidity, reduce financial strain, and optimise cash flow management, allowing for smoother operations and better financial health.

Cash Conversion Cycle (CCC)

Cash Conversion Cycle (CCC) is like a stopwatch for your business, measuring how long it takes to turn your inventory and receivables into cold, hard cash! It tracks the journey from purchasing inventory, through making sales, and finally, receiving payment.

The quicker this cycle, the faster your business is generating cash and keeping operations flowing smoothly.

EXAMPLE

N&N Ski Shop reports:

- DIO: 20 days
- DSO: 40 days
- DPO: 30 days

Calculation: CCC = 20 + 40 – 30 = 30 days

N&N Ski Shop takes 30 days to convert inventory into cash after paying suppliers.

Industry Insight

Manufacturing & Construction: CCC extends to 60–120 days due to long production cycles, project-based billing, and extended payment terms. These industries often rely on milestone-based payments, making cash flow management critical.
Wholesale & Distribution: CCC typically falls between 30–90 days, depending on supplier and customer payment terms. Longer CCC may arise from bulk purchasing and extended B2B credit terms, while businesses with strict credit policies and fast-moving inventory can maintain a shorter CCC.
Retail & E-commerce: CCC typically ranges from 0–30 days, as businesses benefit from high inventory turnover and fast customer payments, often through cash or card transactions. Efficient supply chain management and automated payment processing help keep CCC low.
SaaS & Subscription Services: Often have a negative CCC, as payments are collected upfront before incurring costs. Subscription models provide steady cash flow, reducing reliance on receivables and inventory. Efficient billing automation further optimises CCC.

Best Practices for Managing CCC

Reduce DIO: Optimise inventory levels to improve turnover.
Accelerate DSO: Strengthen collections processes and offer incentives for early payments.
Optimise DPO: Negotiate supplier terms to extend payables without harming relationships.

Brain Exercise

You've explored key AR metrics — now it's time to apply what you've learned. Can you crack the numbers and identify where N&N Skip Shop stands?

Challenge yourself with these calculations and discover how you can improve your financial health. Are you ready to show off your AR expertise? Let's go!

SAMPLE SCENARIO

N&N Ski Shop is experiencing cash flow strain due to delayed payments from wholesale customers. The finance team is assessing their AR performance to identify areas for improvement.

N&N Ski Shop’s recent AR data:
- Total AR: $120,000
- Total Credit Sales (Last 30 Days): $400,000
- Opening AR: $100,000
- Closing AR: $140,000
- Best Possible DSO: 20 days
- Overdue AR (Past Due >30 Days): $50,000

Questions

Calculate the company's DSO.
Determine the AR Turnover Ratio.
Calculate the Average Days Delinquent (ADD).
What percentage of AR is overdue, and what does this indicate?
Bonus: If the company wants to reduce DSO to 25 days, how much should they collect over the next 30 days to achieve this target?
What strategic actions can improve cash flow and reduce overdue AR?

From Metrics to Magic: a Real-life Example

Real-Life Example: How N&N Ski Shop Used AR Metrics to Improve Collections

In FY25 Q3, N&N Ski Shop noticed a slowdown in collections. A sudden dip in cash flow triggered a cross-functional investigation. The finance team pulled data across the Top 10 AR metrics, uncovering patterns that helped drive targeted action.

Here’s how the story unfolded: