What are the most important accounts receivable metrics to track?

If you’re a business owner or part of an accounting team, you know how important it is to get paid on time.

But just sending invoices isn’t enough, you also need a clear view of how well your business manages incoming payments.

That’s where tracking Accounts Receivable (AR) metrics comes in.  

Monitoring the right AR metrics helps you safeguard your cash flow, reduce Days Sales Outstanding (DSO), and keep your finances running smoothly.

And when you’re on top of your AR performance, your whole business benefits—from better planning to stronger customer relationships.

Discover why tracking AR metrics matters, which accounts receivable KPIs are most useful, and how to improve your performance with the right tools. 

Here’s what we’ll cover:

Why tracking accounts receivable metrics matters

Tracking accounts receivable performance metrics ensures the oversight of your cash flow and your company’s financial stability.

When you track the right AR metrics, you see how well your receivables process is working and where you can improve.

These insights can make a big difference in key areas of your business, including: 

Cash flow and working capital

Every day an invoice goes unpaid is a day your business might struggle to cover operating costs.

Tracking AR metrics makes sure you stay liquid and avoid cash crunches. 

Business health

Late or missed payments can signal bigger issues.

Regular AR tracking warns your team about customer behaviour or internal inefficiencies. 

Benchmarks and goals

Setting AR goals based on your metrics helps your team stay focused, improve collection efforts, and align with industry standards.

The most useful accounts receivable KPIs to track

There are plenty of AR metrics your team could monitor. To truly protect your cash flow, it’s best to focus on the ones that matter most.

These key performance indicators offer clear insights into how effective your credit control process is and where there’s room for improvement. 

Here are 10 of the most useful KPIs to keep an eye on: 

1. Days Sales Outstanding (DSO) 

DSO measures the average number of days it takes to collect payment after a credit sale.

It reflects how quickly your business converts receivables into cash.  

Why it matters 

A high DSO indicates that customers are taking longer to pay, which can lead to cash flow issues and impact working capital.

A low DSO suggests your accounts receivable process is efficient and you’re collecting payments timely.  

Formula

DSO = (Accounts receivable ÷ Total credit sales) × Number of days in period 

DSO targets vary significantly across UK sectors.

For example, retail businesses typically aim for 30–40 days, construction firms often see 60+ days, and SaaS companies may target 20–30 days.

Always benchmark your DSO against sector-specific data from sources like the Office for National Statistics and tailor targets to your customer base and payment terms.

2. Average Days Delinquent (ADD)

ADD measures the average number of days invoices remain unpaid past their due date.

It helps you understand how often and how long customers are missing payment deadlines.  

Why it matters

A high ADD indicates poor payment behaviour or issues in your credit control process.

It can signal cash flow problems and the need for tighter credit controls.

Monitoring ADD helps you assess the effectiveness of your follow-up and payment policies. 

How to improve the numbers

• Send regular payment reminders before and after due dates.  
• Offer early payment discounts to encourage faster payments. 
• Follow up promptly on overdue invoices with clear and consistent communication. 
• Review and adjust customer credit if needed. 

3. Cost Effectiveness Index (CEI)

CEI measures how efficiently your team collects outstanding receivables over a specific period.

It reflects your ability to turn invoices into cash and is a key indicator of AR team performance. 

Formula

CEI = (Beginning AR + Monthly credit sales – Ending AR) ÷ (Beginning AR + Monthly credit sales – Ending AR from bad debt) × 100 

A CEI between 80% and 90% is considered strong, while 95% or higher indicates excellent collection performance.

A consistently high CEI suggests that your credit control process is timely and effective, while a lower CEI may point to collection delays or growing bad debt. 

4. Bad debt ratio 

The bad debt ratio estimates the proportion of receivables you expect not to collect, while the write-off ratio measures actual losses.

It reflects how much potential revenue has been lost due to customer non-payment. 

Why it matters 

A high bad debt ratio signals increased credit risk and may indicate issues with customer screening or the effectiveness of your credit control process.

It also impacts profitability and cash flow, making it a critical metric for assessing the overall health of your receivables. 

How to reduce it 

If you’re tracking this metric and notice it’s higher than expected, consider taking action to lower it: 

• Strengthen credit checks before extending terms to new customers. 
• Set shorter or stricter payment terms for higher-risk clients. 
• Follow up early and consistently on overdue invoices. 
• Offer flexible payment plans to encourage repayment before accounts are written off. 

5. AR turnover ratio 

The accounts receivable turnover ratio measures how many times, on average, your business collects its accounts receivable during a specific period—typically a year.

It indicates how efficiently your company is managing credit, its debtors, and collecting payments. 

Formula

AR turnover = Net credit sales / Average accounts receivable 

Why it matters 

A higher AR turnover ratio means you’re collecting receivables more frequently, which is great for maintaining a healthy cash flow.

A lower ratio may suggest issues like slow-paying customers, overly lenient credit policies, or inefficiencies in your credit control process. 

How to optimise it 

Improve your AR turnover with these helpful tips: 

• Tighten your credit approval process to reduce late payments. 
• Send invoices promptly and accurately. 
• Follow up consistently with overdue customers. 
• Offer incentives for early payment or implement late fees when necessary. 

6. Percentage of current AR 

Measuring the percentage of current accounts receivable shows the portion of your outstanding receivables that are still within the agreed payment terms, meaning they’re not yet overdue.

This metric gives you a real-time view of how up to date your customers are with their payments. 

Why it matters

Tracking this percentage helps you quickly assess the overall health of your AR.

A higher percentage indicates that most customers are paying on time, which supports steady cash flow and reduces the need for credit control.

It’s a valuable snapshot of payment behaviour and financial efficiency. 

Aim for 80–90% of your accounts receivable to be current.

However, this benchmark can vary based on your industry, customer base, and standard payment terms. 

7. Dispute rate 

The dispute rate measures the percentage of invoices that customers contest, highlighting the frequency of billing disagreements or issues.

It’s a key performance indicator that reveals underlying problems with invoicing or contract terms. 

Why it matters 

A high dispute rate can delay payments, increase administrative workload, and strain customer relationships.

It often points to problems such as inaccurate invoices, unclear terms, or communication gaps. 

How to reduce it

If you notice this number rising, it’s time to act: 

• Use clear and consistent contracts. 
• Ensure invoices are detailed and accurate. 
• Communicate proactively with customers to resolve questions before they become disputes. 
• Provide easy-to-understand payment terms and conditions. 

8. Cost of credit control

Cost of credit control measures how much your business spends to recover outstanding accounts receivable.

This includes staff time, software, debt collection agencies, and other resources used in the credit control process.  

Why it matters 

Tracking the cost of credit control helps your team understand the efficiency of your AR operations.

Even if you’re collecting payments successfully, high costs can significantly reduce your overall profitability.

Monitoring KPI ensures you’re not overspending to bring cash in the door.  

How to reduce it

If this number starts to climb, consider the following strategies: 

• Automate payment reminders and follow-ups. 
• Use efficient invoicing tools that reduce manual work. 
• Focus your efforts on high-value accounts to maximise returns.  
• Streamline internal processes to reduce time and labour costs. 

9. Write-off ratio 

The write-off ratio measures the percentage of total accounts receivable that have been written off as uncollected.

It shows how much revenue is lost due to non-payment. 

Why it matters 

This metric directly impacts your bottom line and serves as a clear indicator of how effectively you’re managing credit risk.

A high write-off ratio may point to issues with customer vetting, overly lenient credit policies, or delayed collection efforts.  

How to control it

To keep this ratio under control, your team should: 

• Regularly review and adjust customer credit limits. 
• Monitor overdue accounts closely and follow up promptly. 
• Strengthen your credit approval process to minimise future risk. 

10. Customer payment trends 

Customer payment trends track how your customers pay over time, revealing patterns in payment behaviour across your entire customer base. 

Why it matters 

Monitoring these trends helps you identify shifts in behaviour, like consistently late payments, which could signal risk.

Spotting these patterns early allows you to adjust payment terms, plan cash flow more effectively, and proactively manage at-risk accounts. 

Use it to

• Categorise customers based on payment reliability. 
• Offer tailored payment terms or incentives. 

Intervene early before accounts become overdue or require write-offs. 

How to measure and track AR metrics

Wondering how to measure accounts receivable performance without getting overwhelmed?

The good news is you don’t have to do it manually.

That’s where AR KPI dashboards come in. 

• AR metrics dashboards give you a clear, visual overview of your numbers, offering real-time insights at a glance. 
• Use software that integrates with your invoicing and accounting systems to ensure seamless, automated tracking. 
• Set measurable targets that align with your business goals—for example, aim to reduce your DSO by 10% over the next quarter. 

Improving accounts receivable performance

Once you’re tracking the right metrics, the next step is optimising them.

Here are a few effective ways to boost your accounts receivable performance: 

• Reduce DSO: send follow-ups earlier, streamline internal approval processes, and make sure your payment terms are clear from the start. 
• Automate your AR process: use software to automate tasks like invoicing, payment reminders, and reconciliation to save time and reduce errors. 
• Enhance customer communication: a simple reminder or a friendly thank-you email can go a long way in encouraging faster payments. 

Benchmarks for AR metrics

Knowing how you stack up against others in your industry gives you valuable context.

Comparing your metrics to accounts receivable benchmarks helps you identify where you’re excelling, and where there’s room to improve. 

• Industry-specific benchmarks: each industry has its own norms. For instance, manufacturing companies typically have longer DSOs than SaaS businesses. 
• Competitor comparisons: benchmarking against similar-sized companies can help you assess your AR efficiency and identify gaps in performance. 
• Continuous improvement: don’t just aim to hit a target once, monitor your metrics over time to spot trends and drive consistent improvements. 

Common accounts receivable challenges

Even when you’re tracking the right metrics, there are still plenty of challenges in the accounts receivable process that can impact your cash flow and efficiency.

Here are some common issues your business may face: 

• Payment delays: some customers consistently pay late. Consider offering early payment discounts or enforcing stricter payment terms. 
• High dispute rates: frequent disputes can signal issues like inaccurate invoicing or unclear contract terms. 
• Cash flow gaps: slow receivables can create short-term cash flow problems. A consistent and proactive AR process helps keep things on track. 

Overcoming these challenges involves identifying weak points using performance data, automating your AR workflows, and maintaining clear, open communication with customers. 

Effortless AR KPI tracking for maximum cash flow

Technology can really make a difference when tracking your KPIs.  

AR software provides an all-in-one solution that includes dashboards, automated workflows, and reporting features that give your team a clear view of cash flow and payment activity.  

From automating data collation, to delivering real AI-based insights, choosing the right software will set you on a solid path to successful AR management. 

Streamline accounts receivable processes, improve efficiency, and support better financial decision-making, all with a few clicks of a button, instead of hours spent calculating formulas manually. 

Final thoughts

Tracking accounts receivable metrics successfully helps you improve cash flow, reduce risk, and operate with greater confidence.

However, managing all these AR performance metrics manually can quickly become overwhelming.

Consider choosing a system that’s designed to deliver real-time, actionable insights and understands how to make the best of AR processes to really see the benefits without the time sink. 

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