Average Days Delinquent

“Average Days Delinquent” (ADD) is a financial metric that companies use to measure the average number of days that a customer’s account balance has been overdue. This metric is often used in accounts receivable management to assess the effectiveness of a company’s credit and collection policies.

The formula to calculate Average Days Delinquent is:

Average Days Delinquent = (Total Delinquent Days / Total Number of Accounts)

Where Total Delinquent Days is the sum of the number of days each account is past due and the Total Number of Accounts is the number of customer accounts with the company.

A higher Average Days Delinquent can indicate that a company has problems with its collections process or that it is offering credit terms to customers who may not be creditworthy. Conversely, a low ADD can indicate effective collection processes and sound credit policies.

However, the ADD should be used in conjunction with other metrics (like the Days Sales Outstanding) and analyzed over time to give a more comprehensive view of a company’s credit and collections effectiveness. It’s also helpful to compare a company’s ADD to those of other companies in the same industry.