Post by Samson Abayomi Olubode (@abayomi4sam)

CREDIT SALES: DON'T JUST TRACK WHAT CUSTOMERS OWE YOU

If your business must sell on credit, receivables must be actively managed. Here are key metrics every business owner should understand:

Aged Receivables Analysis
Break receivables into 0–30, 31–60, 61–90, 90+ days.
Shows how long customers have owed you and where collection problems are developing.

Portfolio at Risk (PAR)
Measures the proportion of your credit portfolio that is overdue beyond a defined threshold.

PAR = Overdue Receivables ÷ Total Credit Receivables × 100

A rising PAR is a warning that your credit portfolio is deteriorating.

Cash Collection Efficiency (CCE)
Measures how effectively you convert amounts due into actual cash.

High sales don't matter if customers aren't paying.

Days Sales Outstanding (DSO)
Shows the average number of days it takes to collect from customers.

Lower DSO generally means faster cash conversion.

Expected Credit Loss (ECL)
Under FRS 9, businesses recognise expected credit losses on financial assets such as trade receivables.

Don't wait until a customer defaults before considering the possibility of loss. Recognize a percentage of receivables that could go bad from day 1.

Credit sales create revenue—but collections create cash.

If you must sell on credit, don't just ask “How much do customers owe us?”

Ask:
Who owes us? How old is the debt? How likely are they to pay? How quickly are we collecting? And how much could we lose?

Good receivables management protects both profit and cash flow.

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