Financial Intelligence, Revised Edition

Part Seven

Toolbox

ACCOUNTS RECEIVABLE AGING

Want to manage accounts receivable more effectively? DSO is not the only measure to look at. Another is what’s called the aging of receivables. Often, reviewing aging is the key to understanding the true situation in your company’s receivables.

Here’s why. As we mentioned earlier, DSO is by definition an average. For example, if you have $1 million in receivables that are under ten days and $1 million that are more than ninety days, your overall DSO is about fifty days. That doesn’t sound too bad—but in fact, your company may be in substantial trouble, because half of its customers don’t seem to be paying their bills. Another business of the same size might have a DSO figure of fifty days with only ...