Last Updated November 20, 2025
The success of your business depends heavily on customers paying their invoices on time. When those payments become delinquent, the disruption can severely affect more than just your bottom line. Uncollected earnings significantly hinder business growth by limiting your business’s liquidity, resources, and flexibility.
By calculating average days delinquent (ADD) and quantifying customer delinquency, you can better manage your business’s cash flow, adjust payment terms, and make more informed business decisions regarding fund allocation. Maintaining a low average days delinquent also signals strong relationships with your customer base.
Below, explore what role ADD plays in business accounting, how to calculate average days delinquent, and key practices for limiting payment delinquency among existing and new customers.
What Does Average Days Delinquent Mean in Business Accounting?
Average days delinquent (ADD) refers to the time it takes customers to pay their delinquent invoices, from the day after a payment is due until collection. Also known as delinquent day sales outstanding, this essential accounting acronym contrasts with a business’s day sales outstanding (DSO), which describes a broader view of the accounts receivable process. More specifically, DSO calculations include customers who pay early, on time, and late.
ADD is one of many key performance indicators that inform accounts receivable management. For example, another helpful metric called the collection effectiveness index (CEI) compares the funds collected with the amount due over a specific period. Unlike ADD, a high CEI is typically good, while a low CEI is cause for concern.
What Is Average Days Delinquent (ADD)?
Average days delinquent clarifies cash flow trends for individual customers and your business as a whole. With sufficient payment data, you can evaluate how well your current collections processes function overall and which chronically late-paying customers require adjustments to their payment terms. With effective collection strategies, you can better align payment timing with outstanding liabilities, adjust dunning processes, and more accurately predict cash flow.
How Do You Calculate Average Days Delinquent?
Calculating the average days delinquent for your business requires subtracting the best possible days sales outstanding (BPDSO) from the day sales outstanding (DSO). While your business’s DSO provides a general overview of all payments you anticipate receiving, the BPDSO represents on-time payments. Thus, calculating ADD effectively removes customers who pay on time from the equation, allowing you to focus only on those with the potential or tendency to pay late.
Determining these two critical numbers—the DSO and BPDSO—to inform your average days delinquent calculation requires quantifying three additional accounts receivable metrics for a set time period:
- Current accounts receivable
- Average accounts receivable
- Total net credit sales
Example time periods include 30 days (monthly), 90 days (quarterly), and 365 days (annually). Thus, if you wanted to calculate your business’s ADD over the last month, you’d determine your total net credit sales and average and current accounts receivable from the past 30 days.
Average Days Delinquent Formula
Use the formula for average days delinquent below to calculate your company’s ADD:
Average Days Delinquent (ADD) = Day Sales Outstanding (DSO) – Best Possible Days Sales Outstanding (BPDSO)
Here are the formulas for calculating your DSO and BPDSO:
DSO = (Average Accounts Receivable / Total Net Credit Sales) x Time Period
BPDSO = (Current Accounts Receivable / Total Net Credit Sales) x Time Period
Suppose your business has an average accounts receivable of $150,000, a current accounts receivable of $120,000, and total net credit sales for the past 30 days of $450,000. Using the formulas above, your DSO would be 10 days, and your BPDSO would be eight days. Subtracting the latter from the former yields an ADD of two days.
What Is a Good Average Days Delinquent?
In a perfect world, your business’s ADD would be zero, meaning none of your customers paid their invoices late. A low ADD indicates less time between receiving payment and allocating those funds, whether to working capital or timely opportunities to grow your business. However, a good average days delinquent can also vary based on what’s deemed average for your industry.
Deeper accounts receivable analysis also includes comparing your company’s ADD to its DSO, as similar trends between the two reflect the effectiveness of your collection processes. For instance, high DSO and ADD calculations signal one or more issues that require immediate action. In contrast, a stark difference between your company’s ADD and DSO can be a side effect of recent changes you’ve made to payment terms or some other factor.
How to Improve Average Days Delinquent
Improving your business’s average days delinquent, meaning reducing the number of days it takes customers to pay their invoices after they’re past due, requires a strategic approach. A high ADD typically indicates two potential problems of immediate concern: ineffective payment collections and inefficient internal processes. Addressing both client-facing and internal issues separately can help actively resolve them and even prevent future payment disruptions.
Establish Clear and Transparent Payment Policies
Standardize your business’s payment terms to establish and maintain full transparency. When crafting and sending invoices, ensure the following are clearly visible, if not redundant:
- Payment amount
- Payment due date (based on agreed-upon terms)
- Accepted payment method(s)
- Contact information in case of concerns or questions
- Applicable discounts for early payments and penalties for late payments
When building relationships with customers, incorporate acknowledgement and acceptance of these terms into your contracts.
Automate Communication Regarding Payment Status
Automatic notifications about payment status can increase your chances of collecting unpaid invoices and reduce your accounting staff’s workload. Payment reminders sent a few days ahead of the due date prompt customers to pay early or on time. Directing customers to a user-friendly payment portal can also simplify the process.
Periodically Evaluate Customer Accounts
When evaluating potential customers based on their creditworthiness, make sure to align your payment policies with best business practices. Reduce further cash flow problems and customer payment delays by limiting available credit until the outstanding debt is paid, adjusting terms to better align with payment timing if necessary, or otherwise mitigating risk.
Implement Payment Dispute and Resolution Protocol
Adopt a company-wide policy on handling and resolving payment disputes. Establish clear, enforceable guidelines on when and how to send someone to collections as a final attempt to recuperate those funds.
In-Summary: Average Days Delinquent
A few late invoices may not necessarily put you out of business, but tied-up capital can hinder your future plans. Monitor your business’s average days delinquent calculations—both on a customer and business-wide level—to better understand what working capital you have available at any given time. Strive for a low ADD to maintain a steady cash flow that will see your business through many anniversaries yet to come.
Average Days Delinquent FAQs
What is the difference between average days delinquent vs. DSO?
ADD provides a more granular view of DSO, specifically identifying the time between a payment becoming past due and its collection over a set period, such as a quarter. DSO encompasses early, on-time, and late payments.
When does debt become delinquent?
Debt becomes delinquent the day after it’s listed as due. For example, if a payment is due on January 15, the debt becomes delinquent on January 16 if not paid.
How often should I calculate average days delinquent?
Calculate average days delinquent monthly, quarterly, and annually to garner valuable insight into your business’s cash flow. For example, tracking ADD across a quarter helps measure the efficacy of recent changes to your payment policies by identifying and evaluating trends across various touchpoints.
Michael McCareins is the Content Marketing Associate at altLINE, where he is dedicated to creating and managing optimal content for readers. Following a brief career in media relations, Michael has discovered a passion for content marketing through developing unique, informative content to help audiences better understand ideas and topics such as invoice factoring and A/R financing.
