Do you want to know the difference between Average Days Delinquent (ADD) and Days Beyond Terms (DBT)? Are you wondering if you need to measure both? Funding Gates has the answers! Here’s how to provide valuable insight on past due AR at your next team meeting.
What are ADD and DBT?
Average Days Delinquent measures the average time from an invoice due date to the invoice paid date.
Days Beyond Terms calculates the average number of days overdue for all your delinquent invoices at any given point in time.
Average Days Delinquent (ADD) Calculation:
Why measure both ADD and DBT?
Average Days Delinquent is calculated using Days Sales Outstanding (DSO), which incorporates monthly sales in its formula. This helps provide insight into your overall AR health. But you’ll want to be aware of how sales impacts ADD calculations. An increase in sales will lower ADD even if overdue AR stays the same, and vice versa.
For a more granular look at past due AR, DBT can help. DBT is measured daily and is calculated by averaging the delinquency for all unpaid invoices on that day. You can use this to keep your fingers on the day-to-day pulse of your AR. However, because DBT only measures overdue invoices, it may look unnecessarily bleak. You may have a high DBT but if it only represents a fraction of your total AR, it might not be as bad as it seems
There are many different AR Metrics, and no one single calculation captures all the complexities of AR. As a best practice, look at multiple metrics to get a comprehensive idea of your company’s financial health. ADD measures delinquency within the context of your total AR to get the bigger picture. DBT is a daily snapshot of your overdue invoices. To create the most informed AR strategy, look at both metrics in your Funding Gates Credit & Collections Dashboard.
Which metric do you look at most? Let us know!