AR Aging Analysis: How to Reduce DSO and Improve Cash Flow
Master AR aging analysis with practical techniques to reduce Days Sales Outstanding and improve working capital.
AR aging analysis is the foundation of effective collections management. By categorizing receivables into aging buckets (Current, 1-30, 31-60, 61-90, 90+ days), you can prioritize collection efforts and identify at-risk accounts before they become write-offs.
Days Sales Outstanding (DSO) is the most important metric for AR teams. Calculate it as: (Accounts Receivable / Total Credit Sales) x Number of Days. Industry benchmarks vary, but most B2B businesses target 30-45 days. CrediMemo tracks DSO at the client, segment, and portfolio level.
Automate your collection escalation sequence: friendly reminders at 3 days past due, firm notices at 15 days, final notices at 30 days, and collections escalation at 60 days. Automated sequences recover 40-60% more overdue receivables than manual processes.
Use credit note patterns as leading indicators. A spike in credit notes for a particular client often precedes payment delays. CrediMemo's AI analyzes credit note, dispute, and payment patterns to flag at-risk accounts before they age into problem buckets.
Frequently Asked Questions
What is a good DSO target?
For B2B services, 30-45 days is a strong target. Manufacturing and construction businesses often see 45-60 days. The key is to track your trend — consistent improvement matters more than hitting an absolute number.
How often should I review AR aging?
Weekly reviews are recommended for portfolios over $500K. Monthly reviews are sufficient for smaller portfolios. CrediMemo provides daily automated AR snapshots and weekly summary reports.
When should I write off a receivable?
Most businesses write off receivables at 120-180 days past due, after all collection efforts have been exhausted. Always consult your accountant for the tax implications of bad debt write-offs.
Automate Your AR Workflow
CrediMemo AI generates compliant credit notes in 30 seconds, not 30 minutes.
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