The % of overdue is a key performance indicator for collection only. This ratio of overdue invoices / total receivables (or % overdue) allows you to track the part of your outstanding receivables that is late in payment. It shows the performance of your bill collection process and of your collection team.
It is an anticipated indicator of future bad debts: if the result of this ratio is bad, there are big chances that you will have unpaid or bad debts in the next few months.
It is calculated as follows:
Overdue invoices (invoices whose due date is exceeded) / Total amount of accounts receivable.
For example, if your late payments are 50 K€ and your outstanding balance 1000 K€, the ratio is 5%, which means that 5% of the amount of bills that make up your total outstanding are late. 95% of the bills are not due yet.
If 5% is a good performance, 30%, for example, is not one (30% of late payments is particularly high) and indicates that you have some progress to make in your cash collection process, either qualitatively (application of the recovery process) or quantitatively (regular reminders).
The goal is to have a ratio that tends to "0%", indicating that your customers pay you exactly on the due date of your bills and that you don’t have to report any late payments.
This ratio is a good complement to the DSO to track your accounts receivable management performance.
Also use this ratio to determine your "old" debt ratio by taking only the delays of more than 60 days, for example. The percentage obtained allows you to highlight the invoices on which the risk of default is high. It is possible to apply this ratio to every tranche of your aging balance.
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Overdue % in My DSO Manager
This indicator is a KPI in My DSO Manager and it is calculated automatically by the software by customer, group of customers, and globally.
It is also included in several reports as the aging balance. It can also be calculated for overdue payments above 30 days, 60 days, 90 days or xx days. See the online demo.
How to improve your overdue percentage?
Ensure that sales conditions and payment terms negotiated with your client are balanced, and commit your client to pay on time.
Disputes may also cause delays in payment if they are not resolved quickly. It is therefore necessary to analyze and understand the origin of late payments and to implement corrective actions.
By improving your performance in collection management» Collect your invoices.
Understand the organization of your client for invoice validation and payment.
Ask yourself: What should have been done to avoid the delay of payment and what process should be implemented?
It remains to measure the potential impact of unpaid invoices and/or accruals for bad and old debts on the profit and loss statement to get a clear idea of your performance in Credit Management.
