Open receivables and DSO: what the KPI really means

The starting point is default. Under section 286 of the German Civil Code it arises through a reminder, but at the latest 30 days after the due date and receipt of the invoice; against consumers only if the invoice pointed out that consequence.

From the onset of default, interest can be charged: five percentage points above the base rate against consumers, nine percentage points where no consumer is involved. In business-to-business trade a flat fee of EUR 40 may also apply. An open items list should show invoice number, due date, remaining balance, dunning level and last contact for every position. A short note in the system replaces any later reconstruction from memory.

What needs checking is the conclusion of the contract, the service rendered, a proper invoice and the payment term. Only when this chain is unbroken do the consequences of default apply. Against consumers, the notice about the 30-day rule is added.

The debtor also has to be identified unambiguously: correct company name, legal form and address. Mix-ups cause delays in the dunning procedure. Open receivables are reconciled with bank transactions monthly so that phantom balances never reach a reminder letter. For the situation described here, the task is this: what the KPI really means.

Traceability matters more than decimal places. The breakdown should show the principal, the start of default, the interest period, the rate, the interest amount and any flat fees separately, so that the total remains verifiable.

Partial payments are recorded with their date and reduce the interest amount from the day of receipt. Without that allocation, differences arise that have to be explained later. A well-maintained open items list is the basis for every DSO and ageing analysis. What is prepared properly at this stage shortens every subsequent step.

Inconsistency is the main risk. If dunning levels are applied differently depending on the customer, a pattern emerges that debtors adapt to. Add missing deadlines, unclear amounts and letters with no traceable sender in the system. The earlier this point is clarified, the less time enforcement costs later.

Equally critical: receivables left unmentioned out of consideration for the customer relationship. The amount does not disappear, but the default risk rises. A monthly look at the age structure reveals shifts earlier than any individual case review. That brings the starting point back into view: what the KPI really means.

The practical consequence is changed payment behaviour. Customers who know that deadlines are monitored and default consequences are calculated pay earlier on average, without any dispute arising.

At the same time the documentation effort grows. Automating it pays off; handling it manually erodes the benefit quickly. Positions with no movement for several months belong on a separate review list. Small improvements here work through the entire receivables portfolio.