You can track ten accounts receivable metrics and understand none of them, or track four and run a tight ledger. The four that matter answer four questions: how long do you wait to get paid, how late is that really once you allow for your terms, how well do you collect what is collectable, and is the picture getting better or worse. This guide gives each a formula, a target, and a UK sector benchmark.
The short answer
Track four metrics. Days sales outstanding (DSO) is the average days you wait to get paid. Average days delinquent (ADD) strips out your payment terms to show pure lateness. The collection effectiveness index (CEI) measures how much of what you could collect you actually did. And the share of debtors deteriorating tells you whether the trend is going the wrong way. DSO and ADD measure time, CEI measures execution, and the deterioration rate is your early warning.
- DSO: average days from invoice to payment.
- ADD: DSO minus best possible DSO, the avoidable lateness.
- CEI: the percentage of collectable receivables you actually collected.
- Share deteriorating: the proportion of accounts getting worse.
Days sales outstanding, the headline number
Days sales outstanding: the average number of days your invoices take to get paid.
DSO is the average number of days between raising an invoice and getting paid. The formula is your accounts receivable divided by total credit sales for a period, multiplied by the days in that period. So £150,000 of receivables on £900,000 of annual sales is (150,000 ÷ 900,000) × 365 = 61 days.
On its own DSO can mislead, because a business on 60-day terms will always show a higher number than one on 14-day terms, without being any worse at collecting. Read it against your terms and over time, not as a single snapshot. As a rule of thumb, aim to keep DSO within about 15 days of your standard terms.
Best possible DSO and ADD, the honest version
Best possible DSO is what your number would be if every customer paid exactly on their due date: current receivables divided by total credit sales, times the days in the period. Subtract it from your actual DSO and you get average days delinquent, the pure lateness with your payment terms taken out of the equation.
If your DSO is 55 days and your best possible DSO is 32, your ADD is 23 days, which is the part you can actually fix. Under 10 days of ADD is strong; above 20 days points to a process problem rather than generous terms. ADD is the metric to watch if you want one number that is not flattered or punished by the terms you happen to offer.
Collection effectiveness index, how well you execute
DSO and ADD measure time. The collection effectiveness index measures execution: of the money you could have collected in a period, how much did you actually bring in. Expressed as a percentage, it compares your opening receivables plus credit sales, less what is still outstanding, against the same figure less only the amounts not yet due.
Above 80% is considered satisfactory and above 90% is strong. CEI is useful precisely because it is hard to game: a team can let DSO drift for reasons outside its control, but a low CEI almost always points to chasing that is not happening consistently.
The share of debtors getting worse, your early warning
The first three metrics tell you where you are. This one tells you where you are heading. Each month, look at your aged-debt report and count the share of accounts that moved the wrong way: from current into overdue, or from the 30-day bucket into 60, or 60 into 90. A rising share is the earliest sign of a systemic problem, well before it shows up in DSO.
There is no universal formula, because it depends on your ledger, but the discipline is simple: compare this month's buckets to last month's, and act on the accounts that slipped. Most finance teams never track this, which is exactly why it is a useful edge.
What good looks like by sector
A rough DSO health band relative to your payment terms. Within about 15 days of terms is healthy; well beyond it signals a collections problem.
A DSO of 60 days is alarming for a retailer and unremarkable for a construction firm. These are broad UK ranges compiled from BACS, Experian, Atradius and industry survey data; treat them as a guide, not a verdict.
| Sector | Typical DSO | A good target |
|---|---|---|
| Retail (B2B supply) | 35 to 50 days | 25 to 35 days |
| Wholesale and distribution | 40 to 55 days | 30 to 40 days |
| IT services and software | 45 to 55 days | 30 to 40 days |
| Recruitment and staffing | 45 to 60 days | 30 to 40 days |
| Professional services | 50 to 65 days | 35 to 45 days |
| Manufacturing | 55 to 70 days | 40 to 50 days |
| Construction | 65 to 80 days | 50 to 60 days |
Broad UK ranges as of 2026, compiled from BACS Late Payment Survey, Experian Late Payment Index, Atradius and sector reports. Your terms and customer mix shift these.
One caution the cross-industry averages hide: bad debt varies wildly by sector. Roughly nine in ten IT and software businesses write off under 5% of revenue, while a meaningful share of construction firms write off more than 14%. Benchmark against your own sector, not a blended figure that describes no one.
How to track these without a finance team
You do not need a dashboard to start. Pull DSO and your aged-debt buckets monthly from your accounting system, calculate best possible DSO and ADD from the same report, and note the share of accounts that slipped a bucket since last month. Fifteen minutes a month is enough to spot a problem early. AR tools automate the calculation and the trend, but the discipline of looking matters more than the tooling.
Frequently asked questions
What is a good DSO?
It depends on your terms and sector. A B2B services business on 30-day terms is healthy at 30 to 45 days; a construction firm on longer terms might be fine at 60 to 80. The more useful test is to keep DSO within about 15 days of your standard terms, and to watch the trend rather than a single month.
What is the difference between DSO and ADD?
DSO is the total average wait from invoice to payment, including your payment terms. Average days delinquent strips the terms out: it is DSO minus best possible DSO, leaving only the avoidable lateness. ADD is the fairer measure of how well you collect, because it is not flattered or penalised by the terms you offer.
What is a good collection effectiveness index?
Above 80% is considered satisfactory and above 90% is strong. CEI measures how much of the collectable receivables you actually collected in a period, so it reflects the quality of your chasing rather than the generosity of your terms.
How often should I review these metrics?
Monthly. Annual figures smooth over the seasonal peaks and troughs where problems hide. A short monthly review of DSO, ADD, CEI and the share of debtors that slipped a bucket is enough to catch deterioration before it becomes a cash-flow problem.
The bottom line
Four metrics run a tight ledger: DSO for the wait, ADD for the avoidable lateness, CEI for how well you collect, and the deterioration rate for where it is heading. Benchmark them against your own sector, review them monthly, and act on the accounts that slip. The teams with the best numbers are rarely the ones with the most metrics; they are the ones who look every month and follow up.
Sources and further reading
- The Hackett Group: 2025 Working Capital Survey
- Xero Small Business Insights (UK)
- Atradius: UK B2B Payment Practices 2025
Benchmarks are broad UK ranges as of 2026 and vary by sector, terms and customer mix. This guide is published by Accounting.Events, powered by Paidnice.
People also read
Cash flow
How to reduce DSO
The levers that move DSO most, and a 30-day plan.
Credit control
The credit control process
The end-to-end process, from credit checks to escalation.
Getting paid
How to chase overdue invoices
The sequence, the channels, and when to escalate.
Buyer's guide
Best credit control software UK
Six credit control systems compared on statutory interest and reviews.