Accounts Receivable (DSO)
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Accounts receivable (AR) represents money owed to a company by customers for goods or services already delivered but not yet paid for. Managing AR efficiently is critical for cash flow — slow-paying customers create working capital pressure.
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Tip: Offer a 2/10 net 30 terms: 2% discount if paid within 10 days, full amount due in 30. Many customers will pay early for even a small discount, dramatically improving your DSO.
- 1When a sale is made on credit, AR increases by the invoice amount
- 2When the customer pays, AR decreases and cash increases
- 3Ageing analysis: bucket AR by how overdue each invoice is (30, 60, 90+ days)
- 4The older a receivable, the less likely it is to be collected
Invoice £5,000 · 30-day terms · Customer pays on day 45=15 days overdue — flag for follow-upDSO = 45 days for this customer
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Fun Fact
Invoice factoring — selling AR at a discount to a third party for immediate cash — is a multi-trillion-dollar industry. Many small businesses use it to bridge payment gaps.
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