What You’ll Learn:
- How to measure the efficiency of your accounts receivable (AR) management
- Which policies and practices can help reduce overdue invoices
- How to identify and mitigate risks that could affect your cash flow
When it comes to your business’s cash flow and financial health, few metrics are more important than accounts receivable (AR). A strong AR function keeps your business liquid, creditworthy, and growing. A weak one? It starves your operations and puts your long-term goals at risk.
Knowing that, how do you assess accounts receivable health in a simple, actionable way?
This checklist breaks down the key performance metrics, processes, and risks every controller, accountant, and AR team should review regularly. Whether you’re preparing a quarterly report, optimizing collections, or looking to improve AR for investors, this accounts receivable analysis is your starting point.
Accounts receivable analysis checklist
If you’re responsible for getting invoices paid, you know that accounts receivable is more than a back-office function—it’s a critical part of your business’s financial health. This practical checklist will help you assess your AR performance, spot risks, and identify areas for improvement.
Performance metrics: Are you getting paid efficiently?
Every business needs to know how quickly and reliably cash is coming in the door. The KPIs for accounts receivable will help you assess your efficiency.
- ✔ Do you consistently calculate your days sales outstanding (DSO)?
Why it matters: DSO measures the average number of days it takes to collect payments after a sale. A lower number typically means faster cash flow. It sets a baseline for comparison over time.
- ✔ Is your DSO stable or improving month-over-month, quarter-over-quarter?
Why it matters: Volatile or rising DSO can indicate deeper issues, like inconsistent customer payment behavior or internal billing inefficiencies, which can affect your cash flow and business credit score. A sudden drop in DSO can signal debt write-offs or declining sales volume—both of which may be red flags rather than signs of improved collections.
- ✔ Do you regularly review your AR aging report?
Why it matters: This report shows how long invoices have been outstanding and highlights which clients are trending toward overdue. It’s one of your most powerful AR tools.
- ✔ What percentage of your AR is past due by 30+ days?
Why it matters: High overdue percentages slow growth and increase the risk of non-payment. This figure helps you prioritize collection efforts.
- ✔ What percentage of your AR is severely overdue (90+ days)?
Why it matters: The longer an invoice remains unpaid, the less likely you are to collect. A high 90+ day balance is a sign you need to clean up your accounts receivable management.
- ✔ Is your bad debt ratio within your industry’s healthy range?
Why it matters: This ratio shows how much revenue you’re unlikely to collect—an early warning sign that your credit terms or customer screening might need adjustment. Calculate it by dividing bad debt write-offs by total credit sales.
Processes and policies: Is your foundation solid?
Even if your metrics look okay today, poor processes can lead to bigger problems tomorrow.
- ✔ Do you have a written credit policy shared across teams?
Why it matters: This ensures consistent credit terms and protects your team from miscommunication between sales, finance, and AR.
- ✔ Do you run credit checks before extending significant credit?
Why it matters: Performing credit assessments upfront reduces the likelihood of working with risky clients, protecting your cash flow and reducing collection headaches.
- ✔ Is your invoicing process prompt and accurate?
Why it matters: Delays or errors in invoicing can directly delay payment. Aim to invoice within 48 hours of service or delivery.
- ✔ Do you follow a documented collections process?
Why it matters: A standardized collection timeline—complete with reminders, escalation steps, and tone guidance—ensures consistency and professionalism.
Why it matters: Recognizing which clients consistently pay late can inform decisions on credit limits, collection strategies, or customer retention.
- ✔ Do you include AR health in your cash flow forecasts?
Why it matters: Incorporating expected collections ensures your projections are realistic and your spending aligns with incoming revenue.
Risk factors: Are you vulnerable?
Even with clean processes and good performance, some structural risks can still trip you up.
- ✔ Is more than 20% of your AR tied to a handful of customers?
Why it matters: Customer concentration risk means a single delayed payment or default could severely impact your cash flow. Diversification matters.
✔ Are you initiating collections early—right after the due date?
Why it matters: The sooner you engage, the more likely you are to get paid. Don’t wait until an invoice hits 60+ days to take action.
- ✔ Do you offer multiple convenient payment methods?
Why it matters: Reducing friction by accepting options like ACH, credit cards, or online portal payments increases your chances of getting paid on time.
Have you tried fast, fee-free invoicing with Hopscotch to streamline AR and collections for your business?
Visibility and analysis: Do you have insight?
To improve AR, you need more than data—you need usable insights.
- ✔ Can you quickly generate accurate AR reports?
Why it matters: Real-time visibility into DSO and aging reports allows for timely decisions and resource allocation.
- ✔ Do you track payment trends by client or segment?
Why it matters: Recognizing which clients consistently pay late can inform decisions on credit limits, collection strategies, or customer retention.
- ✔ Do you include AR health in your cash flow forecasts?
Why it matters: Incorporating expected collections ensures your projections are realistic and your spending aligns with incoming revenue.
Risk factors: Are you vulnerable?
Even with clean processes and good performance, some structural risks can still trip you up.
- ✔ Is more than 20% of your AR tied to a handful of customers?
Why it matters: Customer concentration risk means a single delayed payment or default could severely impact your cash flow. Diversification matters.
What all this tells you about your overall AR health
After working through this checklist, you’ll have a clearer sense of accounts receivable strengths and gaps. Maybe you’ve got excellent customer payment behavior, but outdated invoicing tools. Or perhaps your metrics are fine now, but you’re lacking a safeguard against future risks.
Wherever you land, the key is action. Use this accounts receivable analysis to inform process changes, justify tech investments, or even realign growth goals.
Your AR isn’t just about collecting money. Done right, it’s a strategic engine for growth, resilience, and valuation. Let’s make sure it’s healthy enough to power what’s next.
Find out more about how you can turn your accounts receivable into an asset that grants you financial flexibility. Get approved for Hopscotch Flow.
Bret Lawrence
Writer
Bret Lawrence writes about invoicing and cash flow management at Hopscotch. Her previous roles include senior financial writer at Better Mortgage, where she covered lending and the home buying process. Her writing is not financial advice.
