A/R Management & Automation
Collections Analytics
Customer Self Service Portal
Customer Invoice Distribution
Cash Application
Gaviti Disputes and Deductions
Credit Management and Monitoring
ERP Compatibility
Use cases

Average Days Delinquent

Average days delinquent (ADD) refers to the average number of days that pass between due dates for invoices and the receipt of payment. Accounts receivable teams use this metric to evaluate client accounts and analyze payment delinquency across several accounts. With this information, the A/R team can fine-tune invoicing, communication, and B2B collection process.

What Is the Average Days Delinquent Calculation?

To calculate average days delinquent, you can use a simple, three-step process. There are two additional calculations you need to make prior. When reviewing the results, keep in mind that a low ADD is preferable to a high one. What ranks as high or low will depend on industry norms and trends within your business over the past few years.

1. Calculate the Days Sales Outstanding

This refers to the number of days that credit sales remain unpaid, starting at the date of the transaction.

DSO = (Average Accounts Receivable / Total Credit Sales)
x Number of Days

2. Calculate the Best Possible Days Sales Outstanding

This refers to the DSO that companies would experience if there were no past-due payments to consider.

BPDSO = (Current Accounts Receivable / Annual Credit Sales)
x 365 Days

3. Calculate the Average Days Delinquent

This final step uses the previous information, so it’s important to double-check your calculations before proceeding.


Why Is It Important To Calculate the Average Delinquent Days?

Receiving payments on or before the agreed-upon receivable due date is the ideal situation for all transactions. Realistically, few businesses ever see this level of payment history, especially in B2B settings. Even so, collections teams must do everything they can to work toward that goal. Knowing the average days outstanding and delinquent for credit payments is crucial.

1. Predict Default Rates

After a few years in business and dozens of clients, you have likely collected a lot of data and had personal experience with collections. Knowing the average days to pay can fine-tune your ability to determine the characteristics of a business that tends to fall behind on payments, so you can plan accordingly.

2. Project Cash Flow

Managing cash flow is crucial to keeping your business afloat, but this is hard to do when clients don’t pay on time. Knowing the ADD makes it easier for you to make more realistic predictions regarding when payments should come in. You can then plan accordingly for your own financial obligations.

3. Improve Communications

Sometimes, your accounts receivable team might be able to dig deeper to determine which clients have higher ADDs than others. This might help them to create separate communications strategies for these companies to better address the unique scenarios that lead to late payments.

How Can Accounts Receivables Automation Help?

Accounting is a complex process filled with many minor tasks. Any small error can completely throw off the books. Reducing manual entry and increasing levels of automation can mitigate this significantly.

Gaviti takes things a step further to make it easy to automate the calculation of key metrics and the managing of the collections process. Never forget to send an invoice or past-due reminder again.

Are you ready to simplify your collections process and get more cash coming into your business on-time? Let’s get started with a free demo.

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