Do You Know Your AR Numbers? Most Don’t and It’s Putting Them at Risk

In today’s uncertain economy, it’s more important than ever that AR teams know their numbers.

Specifically. you need to know:

·         How much –and for which customers– you should tighten credit;

·         How to stay on top of late payments;

·         And, how you can improve your performance.                 

Tracking Client Credit

The warning signs have been blaring since the end of 2024, according to the Federal Reserve’s Senior Loan Officer Opinion Survey’s fourth quarter survey. In the first quarter of 2025, banks reported that they continued to tighten commercial and industrial loans.

The Fed reported: “Moderate to modest net shares of banks reported smaller maximum sizes of credit lines, higher premiums on riskier loans, tighter loan covenants, tighter collateralization requirements, and more frequent use of interest rate floors for firms of all sizes.”

Bank loans are leading indicators of company’s credit worthiness. If banks are being more careful loaning money to your customers, you too should be careful about how much you extend on credit.

IOFM suggests you consider the following:

Re-evaluate Credit Policies

As customers lose access to bank financing, toughening your own credit standards can help mitigate the risk of non-payment.  

Enhance Customer Credit Evaluations

When onboarding a new customer, or one in a newly challenged industry (i.e., those exposed to new tariffs thoroughly their supply chain), you should be more careful in conducting thorough reviews of customers’ financial health before extending credit.

Monitor Existing Accounts

Even long-time customers should not be ignored. Consider implementing stricter monitoring of outstanding receivables to identify early signs of payment issues. Best practice is to over-communicate with sales to make sure you’re on top of any payment risks.

Adjust Payment Terms

If you find reasons to worry about a customer’s creditworthiness, consider shortening payment terms or requiring advance payments.

Track Delayed Collections

Watch for any changes in payment patterns. For example, if a client previously paid in 15 days to capture early-pay discounts and is now just meeting the Net30 payment schedule, it should raise a red flag. This requires a watchful eye because such a change would not show up in your DSO or aging receivables reports because technically they are paying on time.

Clients are delaying payments, especially those in the product space. A recent focus group assembled by IOFM found that customers are using deductions to delay payments.

It’s important to update your collections script, given today’s challenges. (IOFM Members can access suggestions here.)

Stay on Top of Your Team’s Performance

The only two metrics tracked by a majority of AR organizations are DSO and Aging Receivables. While helpful, they should not be the only things you track. Both metrics are lagging indicators, at best. And at worst, just tracking averages can mask individual customer issues.

(Members can access a more robust list of metrics you should track more closely in today’s economic environment.)

What’s more challenging is that AR teams rarely compare their performance to their peers. The reason that’s so problematic is that more than three-quarters of AR leaders assumption about whether their performance is good or bad is simply wrong, according to IOFM’s latest AR benchmarking report.

If you’re relying on bad gut-check benchmarking, you’re making business decisions on faulty assumptions and you could end up making the wrong decisions.

Given today’s challenges, it’s crucial you make data-driven decisions based on the full picture.