The short answer
4 numbers and 30 minutes a week tell you whether collection is working. Without them you are judging it by feel, and feel is dominated by whichever client annoyed you most recently.
Days sales outstanding, for how long collection takes overall.
The share of the ledger that is still current, for the health of the book.
Average days beyond terms, for how late the late ones actually are.
The age of your oldest open invoice, which catches drift before anything else does.
This is a different question from whether you can cover payroll. A cash flow forecast answers that one. These numbers answer whether the collection process itself is getting better or worse, and which invoices need a human this week.
Why the obvious numbers mislead
The bank balance tells you about the past and about timing. A healthy balance in a week when 3 large invoices happened to land says nothing about whether the other 20 are moving.
Revenue is worse, because it records what you invoiced rather than what arrived. A record quarter with a lengthening ledger is a business getting less solvent while the chart points upwards. That is the gap the cost of doing it yourself hides inside.
What you want is a small set of figures about the receivables themselves, taken at the same moment each week, so that the direction is visible.
The 4 numbers
Number | How to get it | What it tells you |
|---|---|---|
Days sales outstanding | Receivables ÷ revenue for the period, times the days in it | How long the whole cycle takes |
Percent current | Value not yet past due ÷ total open, as a percentage | Whether the book is healthy or ageing |
Average days beyond terms | Mean days past the due date, overdue invoices only | How late the late ones are |
Oldest open invoice | Read it off the ageing report | Whether anything has been quietly abandoned |
The first is the headline. The FDIC's small business guidance treats days sales outstanding as 1 of the 3 components of the cash conversion cycle, measuring the time it takes to collect cash from customers after a sale. For an agency there is no stock to hold, so it is close to the whole cycle.
The third is the one most often confused with the first, and the distinction matters. DSO includes the terms you agreed, so a business on net 45 will always have a higher DSO than one on net 14 even if both collect perfectly. Days beyond terms strips the terms out and measures only the lateness. If DSO is rising while days beyond terms is flat, you sold longer terms. If days beyond terms is rising, collection is slipping.
The fourth takes 2 seconds and is worth more than it looks. An invoice quietly ageing past 120 days is almost always one nobody owns, and it is the clearest signal that the process has a hole rather than a hard client.
Read the ageing report in buckets
Group open invoices by how far past due they are, and treat each bucket as a different job rather than a longer version of the same one:
Not yet due. No action beyond making sure it arrived and is approved. Most of the ledger should live here.
1 to 30 days. Ordinary follow-up. Usually administrative, and usually fixed by an ordinary message.
31 to 60 days. Stop emailing and phone. Something is blocking it, and the block has a person attached.
61 to 90 days. Escalate beyond your contact, to accounts payable and to whoever commissioned the work.
Over 90 days. A decision rather than a reminder. Pause, demand, settle, or write it off.
The point of the buckets is that the right action changes as the invoice ages, and the common failure is sending the same gentle reminder at day 10 and day 90. The second one has no effect except to tell the client that nothing follows.
The 30 minutes a week
Same time each week, same order. It is short because the decisions are mostly binary:
Pull the ageing report and write down the 4 numbers. 5 minutes.
Anything crossing from current into overdue since last week gets the standard first message, sent today.
Anything crossing 30 days gets a phone call booked, not another email.
Anything over 60 days gets a named owner and a next step with a date.
Note the oldest invoice and whether it moved. If it has not moved for 3 weeks, it needs a decision.
Doing it weekly rather than monthly is most of the value. On a monthly cadence an invoice can sit 5 weeks before anyone looks at it, by which point it has missed a payment run and the conversation starts from behind.
Write the numbers down each week even when nothing changed, because the series is the point. A single week's DSO tells you almost nothing; 8 weeks of it tells you whether anything you changed worked.
What good looks like
Direction beats benchmark. A DSO of 52 days falling steadily is a healthier sign than 38 days drifting upward, and benchmarks across industries are too broad to act on.
That said, 2 anchors are useful. Your DSO should sit close to your stated terms plus a few days of friction; a gap of 3 weeks or more means the terms are decorative. And the share of the ledger that is current should be the large majority, with anything over 90 days as an exception you can name individually rather than a category.
For the EU, the Late Payment Directive provides a reference point: where a contract does not specify a payment date, interest runs from 30 days after the invoice is received. A client routinely beyond that is outside the default the law assumes, which is a reasonable thing to say out loud.
For a specific large client in the UK, you can check rather than guess. The government's payment practices service publishes, twice a year, the average time large businesses take to pay suppliers and the proportion of payments made outside agreed terms. Large means meeting 2 of: £54 million turnover, £27 million on the balance sheet, 250 employees. If their published average is 60 days and they are paying you in 65, you are not being singled out, and the fix is a terms conversation rather than a collections one.
When the numbers point at 1 client
Before redesigning a process, check whether the problem is distributed. Sort the overdue value by client and look at the top line.
Frequently a single client accounts for most of the overdue balance, and the ledger looks broken when the process is fine. That is a different problem with its own article: when your biggest client is your latest payer. Similarly, a client who is reliably 2 weeks late every single month is a pattern to line up with rather than a monthly argument to have.
Where the overdue value is spread across many clients and many ages, the process is the problem, and the answer is usually that nobody owns it. That is the question in who should follow up your unpaid invoices.
The number to show the team
Pick 1 and make it visible. Percent current works best for most agencies, because it is intuitive, it moves when behaviour changes, and it does not require anyone to understand a formula.
Avoid making it a target with consequences attached. The point is a shared sense of whether the book is healthy, not a figure somebody manages by holding invoices back or by writing off anything awkward.
FAQ
What is a good DSO for an agency?
Close to your stated terms plus a few days. On net 30, the mid-30s is normal and the mid-50s means roughly 3 weeks of slippage on every invoice. Treat the direction over 2 months as more informative than the number itself.
What is the difference between DSO and days beyond terms?
DSO includes the payment terms you agreed, so longer terms raise it even with perfect collection. Days beyond terms measures only lateness past the due date. Rising DSO with flat days beyond terms means you sold longer terms; rising days beyond terms means collection is slipping.
How often should I review the ageing report?
Weekly. On a monthly cycle an invoice can sit 5 weeks before anyone looks, which is long enough to miss a payment run and start the conversation from behind.
What should I do with invoices over 90 days?
Make a decision rather than send another reminder. Pause work, send a demand letter, offer a settlement, or write it off. A gentle message at day 90 mainly signals that nothing follows your messages.
How do I know whether a client is unusually slow?
Compare them against their own history first. For a large UK client you can also look up their published payment practices data, which gives their average time to pay and how much they pay outside agreed terms.
Which single number should I track if I only track one?
The share of the ledger that is still current. It is easy to understand, it responds to changes in behaviour, and it falls early when collection starts to slip.
Not financial advice. Definitions of these measures vary between accounting systems, so check how your own tool calculates them before comparing against anything external.