How to read a receivables ageing report, and the four numbers that matter

Most distributors have a figure for what they are owed. Very few have a figure for how long they have been owed it, and the second number is the one that predicts trouble.

The report, and what each bucket means

A receivables ageing report puts every unpaid invoice into a bucket by how long it has been outstanding.

Bucket	What it means
Not yet due	Normal. Ignore.
1–30 days overdue	Usually a process delay at their end. A statement fixes most of it.
31–60	They are using you for working capital. Worth a call.
61–90	Something is wrong. Find out what before it gets larger.
90+	Assume you will have to work for this. Some of it will not come.

Two rules for reading it.

Read it by customer, not in total. ₹8 lakh outstanding means nothing. ₹8 lakh where ₹6 lakh is one retailer at 75 days is a specific problem with a specific name.

Read the movement, not the level. A retailer who has always been at 45 days is a known cost of doing business. A retailer who was at 20 days last quarter and is at 50 now is the one to worry about, even if their balance is smaller.

The four numbers

1. Days sales outstanding. How many days of sales are sitting unpaid.

DSO = (receivables ÷ sales in the period) × days in the period

₹8 lakh owed on ₹24 lakh of sales in 90 days is a DSO of 30. That means on average you are financing your customers for a month.

DSO on its own is not good or bad. Compare it to your own credit terms, and to the 45-day limit the MSMED Act sets if you are registered. If you sell on 30 days and your DSO is 30, the system is working. If you sell on 30 and your DSO is 52, twenty-two days of sales are stuck somewhere and nobody decided that.

2. Percentage over 60 days. The health check. Under 10 per cent is normal. Over 25 per cent means collections have stopped working, not that a customer is slow.

3. Concentration. What share of your receivables sits with your largest three customers. High concentration is not automatically bad — it is often your best customers — but it tells you how much of your cash depends on how few decisions.

4. Your own payment days. What you owe suppliers, on the same basis. If you collect in 52 days and pay in 30, you are funding a 22-day gap out of your own pocket, and that gap is the reason a profitable business runs out of cash.

Spotting a retailer going bad

Before someone stops paying, they nearly always do these first, in roughly this order:

• Payment days creep up. Twenty-five, then thirty-two, then forty-one. Each one is defensible on its own.
• Round-figure part payments. ₹50,000 against a ₹73,400 balance, with nothing said about which invoices.
• Order size drops but frequency holds. They are buying what they can pay for.
• They start disputing old invoices. Almost always a delaying move, and easy to end with a statement.
• They go quiet. No orders at all is the last signal, and by then the money is already old.

Any one of these is nothing. Two together, on the same account, in the same quarter, is worth a conversation while the balance is still small.

The weekly routine

Fifteen minutes, once a week, beats a panic at month end.

1. Anything newly past due. Not everything overdue — the ones that crossed the line this week. Small list, and a message on the day it happens works far better than one three weeks later.
2. Anyone whose payment days moved. The creep above.
3. Anything over 60 that has not been chased this month. A call, and a note of what they said.
4. Send statements to the top ten balances. Not reminders. A statement showing every invoice, every payment and the balance. It turns up payments you never recorded, which is a surprisingly common cause of a disputed figure.

The point of the routine is not pressure. It is that a debt someone knows is being watched gets paid before a debt nobody has mentioned in two months.

The part that is not about collections

If your DSO is 50 and your terms are 30, the problem is often not the chasing. It is that nobody knows the number.

The retailer is not being difficult. Nobody has told them anything is wrong, because the ledger is three weeks behind, and the person who would make the call does not know which invoices are open. So the call does not happen, and the balance ages, and eventually the conversation is much harder than it needed to be.

Collections is downstream of bookkeeping. A business with current records and no collections process usually outperforms one with a collections process and stale records.

Where Dhela fits

Dhela records sales, payments and returns as they happen, and reads purchase bills from a photo so the other side of the ledger is current too. From that it shows ageing by retailer, days of sales outstanding, and who has started paying slower than they used to — plus a printable statement for anyone who asks, or anyone who needs asking.

It puts those numbers on the dashboard rather than waiting to be asked, because the whole failure mode here is not looking.

Free plan, no card. dhela.in