With receivables older than 90 days, your company is having trouble collecting from its customers and paying its bills on time. Since the average number of days sales in receivables for distribution companies is between 30 and 45, your company's performance is considerably poorer than average.
Who's Watching:
See the Definition for a discussion of other parties that are interested in your days sales in A/R ratio.
Actions:
You should review your operations to determine how collections can be speeded up. Some of the factors causing slow collections might include: (1) insufficient, or insufficiently trained, staff assigned to collections; (2) inconsistent or ill-defined collection policies; (3) poor product quality or service, causing customers to withhold payments; (4) seasonal problems (e.g., your customers typically do not pay until the end of the season); (5) a few customers with large but uncollectable balances outstanding; and the like.
You should consider special methods to speed up the collection of your receivables. You might factor your receivables, offer better discounts to your customers to prompt faster payment, or borrow against the receivables from a bank or other commercial lender. You may have to write off a few bad receivables that have proven uncollectable. You may also need to obtain long-term financing if you think your receivables problems will take a long time to cure.
