Accounts receivable (AR) refers to the money a company is owed by its customers for goods or services that have already been delivered but not yet paid for. It represents outstanding invoices that a business expects to collect within a specific time frame. Efficient AR management is critical because delayed payments can cause cash flow problems and impact a company’s financial health.
One of the key tools in AR management is aging reports, which categorize outstanding invoices based on how long they have been unpaid. This process is called aging accounts receivable (aging AR). It helps businesses track overdue payments, identify risky customers, and take action before debts become uncollectible. Aging AR is typically divided into different categories:
• Current (0 – before due date): Invoices that are still within the agreed payment terms and not yet overdue.
• 1-30 days overdue: Slightly overdue payments, but most invoices in this category are still likely to be paid soon.
• 31-60 days overdue: Payments are now late, and follow-ups should begin to ensure collections.
• 61-90 days overdue: Invoices in this category require more urgent action, as delays could indicate financial difficulties on the customer’s side.
• 91-120 days overdue: High-risk invoices where payment is significantly delayed, and escalation may be needed.
• Over 120 days overdue: Critical overdue payments, often requiring legal action or write-offs.
Collecting payments from pharmacies, hospitals, clinics, distributors, and wholesalers can be challenging, especially across different regions with unique payment behaviors. In the DACH region (Germany, Austria, Switzerland), companies generally follow strong financial discipline. Germany, in particular, has a structured payment culture, making it one of the best markets for collections. Switzerland also maintains a stable payment environment, while Austria may have occasional delays.
Benelux (Belgium, Netherlands, Luxembourg) is another relatively reliable market. The Netherlands is known for its efficient payment system, while Belgium and Luxembourg generally follow good practices, though administrative delays in healthcare payments can sometimes slow things down.
France, Spain, and Italy present more difficulties. In France, public healthcare reimbursement processes can delay payments, causing higher AR aging in the 60+ days category. Spain and Italy, meanwhile, are known for slow payment cycles, especially in the public sector. Hospitals and government-funded institutions in these countries often take longer than expected to settle invoices, making collections more challenging. Portugal follows a similar pattern, with delayed payments from public entities being common.
Ireland and the UK are more structured markets, though the National Health Service (NHS) in the UK can experience periodic delays based on budget cycles. Nordic countries—Denmark, Sweden, Norway, and Finland—are among the best markets for collections, with businesses and public institutions following strong financial discipline and structured payment practices.
The Middle East varies by country. The UAE and Saudi Arabia, for example, have growing healthcare markets but can have slow payment cycles due to bureaucratic processes. Government approvals and regulatory requirements can extend the time it takes to collect payments. Eastern European countries also present mixed results. Poland, the Czech Republic, and Slovakia are relatively stable, while Romania and Bulgaria often struggle with late payments, especially from public healthcare institutions.
To drive prompt payments, businesses must adopt a combination of strategies. Clear and well-structured invoicing with detailed payment terms is crucial. Offering early payment discounts can incentivize faster settlements. Regular follow-ups, either through automated reminders or personal outreach, help keep invoices top of mind for customers.
One of the key tools in collections is the dunning process, which involves systematic reminders and follow-ups for overdue payments. Whether dunning calls or emails are more effective depends on the market. In structured markets like Germany, the Netherlands, and the Nordics, emails and formal written reminders tend to work well because businesses adhere to official processes. In Southern Europe (Spain, Italy, Portugal) and parts of Eastern Europe, dunning calls can be more effective, as verbal communication may push payments faster. In the Middle East, a combination of personal relationship management and persistent follow-ups is often necessary to ensure payments are made on time.
Determining when an AR becomes uncollectible depends on the industry and the market. Generally, invoices that remain unpaid for more than two years are considered highly unlikely to be recovered. In some cases, even after 12 months, the chances of collection drop significantly. Businesses must decide whether to escalate to legal action, sell the debt to a collection agency, or write it off as a bad debt.
Managing AR efficiently requires a proactive approach, adapting to market-specific payment behaviors, and using the right mix of email, calls, and incentives. By staying ahead of potential payment delays and implementing structured follow-ups, businesses can improve their cash flow and reduce the risk of bad debt.
