Selling on credit is normal. Still, A/R can get out of hand fast. If receivables grow faster than collections, cash gets tight. Bad-debt risk also rises. The goal is simple: support sales and keep cash steady.

To do that, track receivables and write-offs on a set schedule (monthly is best). Then compare the upside of credit (more sales) to the cost (collections time, financing costs, and write-offs). If bad debt starts to wipe out the profit from new sales, tighten your process.

Below are three core metrics we recommend.

Below are three core metrics we recommend tracking to stay in control.

Metric 1: Accounts Receivable Turnover (Receivables Ratio)

This shows how quickly you collect invoices during a period. Faster collections usually improve cash flow.

$$\text{A/R Turnover}=\frac{\text{Net Credit Sales}}{\text{Average Accounts Receivable}}$$

• A higher turnover ratio usually means you collect faster.
• A lower ratio can point to slow-paying customers, weak follow-up, or loose credit terms.

Metric 2: Accounts Receivable Aging Schedule

An aging report shows what customers owe and how late they are. It helps you focus on the balances that create the most risk.

A typical aging schedule includes:

• Customer name
• Total balance due
• Current (not yet due)
• 1–30 days past due
• 31–60 days past due
• 61+ days past due

Use the aging report to:

• Follow up on older balances first
• Spot repeat slow-payers
• Watch concentration risk (one customer driving most past-due dollars)

Metric 3: Average Collection Period (Days Sales Outstanding)

This estimates the average number of days it takes to collect after a sale. It ties A/R directly to cash flow.

One common approach:

$$\text{Average Collection Period}=\frac{365}{\text{A/R Turnover}}$$

Or:

$$\text{Average Collection Period}=\frac{\text{Average Accounts Receivable}}{\text{Average Daily Credit Sales}}$$where

$$\text{Average Daily Credit Sales}=\frac{\text{Net Credit Sales}}{365}$$

In general:

• A longer collection period means more cash tied up in receivables.
• That often leaves less cash for payroll, inventory, and growth.

You can also compare this metric to:

• Your credit terms (are customers paying late?)
• Industry benchmarks (are you slower than peers?)

Putting the metrics to work

These three metrics work best together:

• Turnover shows the speed of collections
• Aging shows where the risk sits
• Collection period shows the cash impact over time

If you track them monthly, you can catch issues early—before A/R turns into a cash crunch.

How Hedman Partners LLP can help

At Hedman Partners LLP, we help business owners build stronger financial systems. That includes clean monthly reporting, a simple A/R dashboard, and practical collections workflows—so you have better visibility and more control over cash.