Effective management of customer receivables

For any business, managing customer receivables is an important factor in maintaining stable cash flow and long-term sustainability. The Accounts Receivable (AR) indicator measures the average number of days it takes a company to collect payments after a sale. The longer this period, the greater the risk of liquidity pressure, difficulties in daily operations, and deterioration of relationships with customers and partners.

AR as an indicator of financial risk

The accumulation of receivables is not just an accounting problem, but a real business risk. Analyses by international organizations show that companies with long collection periods are more likely to encounter financial difficulties. In the US, the average AR period for small businesses is around 45 days, with significant differences between sectors. Manufacturing companies often work with terms of 50-60 days, while in retail they are shorter – between 30 and 40 days. Businesses that exceed 60 days are significantly more vulnerable than those that manage to collect their receivables within a month.

The link between AR and profitability

The data also shows a direct link between AR management and profitability. Even a relatively small reduction in the collection period can lead to a noticeable improvement in financial results. This makes AR optimization a strategic priority rather than just an operational task.

Credit policy as the basis for control

The first step toward better control over receivables is a clear and consistent credit policy. Companies should regularly review their credit terms and align them with the financial profile of their customers. Stricter credit analysis and preliminary risk assessment help to avoid problems before late payments occur.

The role of invoicing and automation

Effective invoicing also plays a crucial role. Issuing accurate invoices on time and actively tracking payments significantly reduce the collection period. More and more companies are relying on automated systems that reduce errors, facilitate control, and enable timely reminders to customers.

Incentives and alternative solutions for late payments

Early payment incentives are an additional tool for accelerating payments. Discounts or preferential terms motivate customers to pay faster, while improving business liquidity. In situations of chronic delays, factoring can be an alternative for ensuring immediate cash flow by transferring receivables to a third party.

The long-term effect on sustainable growth

Effective management of customer receivables not only improves cash flow but also creates a stronger financial foundation for growth. In a dynamic and competitive environment, companies that manage to control their AR ratio are more flexible, more profitable, and better prepared for future challenges.

TPA Bulgaria

+359 2 981 66 45/46/47

office@tpa-group.bg

128, G.S. Rakovski str, floor 2

1000 Sofia