An outstanding balance in accounts receivable represents the total amount customers owe your business at a specific point in time. This includes all unpaid invoices, regardless of whether they're current or past due. For finance leaders managing B2B operations, outstanding balances form a critical component of your company's working capital and directly impact cash flow management.
Unlike consumer credit card outstanding balances, which typically involve smaller amounts and standardized payment terms, B2B outstanding balances often represent significant sums with custom payment agreements. These balances reflect the complex relationship between your business and your customers, serving as a real-time indicator of your company's financial health and operational efficiency.
Understanding and actively managing your outstanding balances helps you maintain healthy cash flow, predict future revenue, and identify potential risks before they impact your bottom line.
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Tracking and measuring outstanding balances
Outstanding balances occupy a central position in the order-to-cash cycle—the process that begins with receiving an order and ends with payment collection.
Several components contribute to outstanding balances, including:
- Primary invoice amounts for products or services.
- Applicable taxes and fees.
- Any additional charges (shipping, handling, etc.).
- Less any credits, partial payments, or discounts applied.
Businesses typically calculate outstanding balances through accounts receivable management systems that track invoices from issuance to payment. Your ERP or accounting software should provide these figures, but many finance teams still rely on manual calculations or spreadsheets that require regular updates.
Common metrics associated with outstanding balances include:
- Days sales outstanding (DSO): The average number of days it takes to collect payment after a sale.
- Accounts receivable aging reports: Categorized breakdowns of outstanding balances by time periods (current, 30-60 days, 60-90 days, etc.).
- Collection effectiveness index (CEI): A percentage that measures the effectiveness of your collection activities.
Maintaining accurate, real-time visibility into outstanding balances provides finance leaders with the information needed to make informed decisions about cash management, customer credit limits, and resource allocation.
The business impact of outstanding balances: Why reducing them matters
Reducing outstanding balances is a critical priority for financial health and operational efficiency. High outstanding balances create several significant challenges for businesses, affecting everything from daily operations to long-term growth plans:
- Restricted working capital: Every dollar tied up in outstanding balances represents capital unavailable for funding growth initiatives, inventory purchases, or operational improvements.
- Complicated financial planning: Significant outstanding balances make it difficult to predict cash flow accurately, delaying strategic investments and limiting your ability to respond to market opportunities.
- Reduced monetary value: Following the time value of money principle, payments collected today have greater value than the same amounts collected months later because they can be reinvested to generate returns.
- Increased credit risk: Extended payment timelines raise the possibility that customers may experience financial difficulties before settling their debts, potentially resulting in bad debt write-offs.
- Compromised performance metrics: High outstanding balances negatively impact financial ratios that stakeholders and investors monitor, including liquidity ratios and cash conversion cycle measurements.
For finance leaders focused on strengthening company finances, reducing the average outstanding balance improves cash availability while creating positive downstream effects across all financial operations.
Best practices for reducing outstanding balances
Implementing strategic approaches to accounts receivable can dramatically reduce outstanding balances. Consider these proven methods:
- Optimize invoice delivery: Use digital delivery to ensure invoices reach the right person immediately, with clear, accurate information.
- Streamline payment acceptance: Offer multiple payment options, including credit cards and ACH transfers, to help customers easily settle their remaining balance.
- Design an incentive payment structure: Provide discounts of 1-2% for payments received before due dates.
- Personalize collections strategies: Tailor communications and collections procedures based on customer payment history rather than using one-size-fits-all approaches.
- Improve customer communication: Send proactive payment reminders and provide clear contact information for billing questions.
- Establish clear credit policies: Clearly define your credit terms, including the standard payment period, and specify any requirements for credit approval.
- Keep an eye on the numbers: Regularly reviewing aging reports that track the status of your receivables allows you to spot potential issues early and take proactive steps to address them.
- Effectively manage disputes: Use a dispute resolution or case management system so disputes are never lost track of, accurately reported on, and resolved quickly.
How automation helps manage and reduce outstanding balances
AR automation delivers significant benefits for tracking and managing outstanding balances. Automated systems eliminate manual data entry errors, provide real-time balance updates, and reduce the administrative burden of monitoring payment status.
Key automation benefits for outstanding balance management include:
- Predictive payment insights: AI and machine learning algorithms analyze historical patterns to forecast which customers may require additional attention.
- End-to-end visibility: Connected systems link invoicing, payments, and collections data for comprehensive oversight.
- Automated prioritization: Smart systems identify which accounts need immediate focus based on value and risk.
Advanced solutions now incorporate agentic AI and machine learning to predict customer payment behavior based on historical patterns. These predictive capabilities help finance teams anticipate which accounts may require additional attention and proactively address potential payment delays.
Real-time reporting and analytics give finance leaders immediate insights into outstanding balance trends, allowing for faster decision-making and more responsive strategies. Dashboards highlighting key metrics provide at-a-glance visibility into AR performance, helping teams identify issues before they become significant problems.
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Billtrust's approach to managing outstanding balances
Billtrust's unified AR platform addresses outstanding balance management through integrated solutions spanning the entire order-to-cash cycle. Our approach includes:
- Accelerated invoice delivery: Billtrust Invoicing speeds delivery through multiple channels, reducing the time between billing and payment.
- Streamlined payment acceptance: Our Payments solution simplifies acceptance across various methods, making it easier for customers to settle balances quickly.
- AI-powered collections: Billtrust Collections uses artificial intelligence to prioritize accounts and personalize outreach strategies for maximum effectiveness.
The platform's unified approach provides complete visibility into outstanding balances across your customer base, with real-time updates that eliminate information silos between departments. This comprehensive view helps finance leaders make data-driven decisions that accelerate cash flow and improve working capital management.
Discover how we can help reduce your outstanding balances—schedule a demo today.
Frequently Asked Questions
An outstanding balance includes all unpaid invoices regardless of due date, while an overdue balance only includes invoices past their payment due date. All overdue balances are outstanding balances, but not all outstanding balances are overdue.
Outstanding balances form a key input for cash forecasting, as they represent expected future cash inflows. Accurate tracking of these balances and their aging helps finance teams predict when cash will be available for operations and investments.
Days Sales Outstanding (DSO) measures how quickly a company collects its outstanding balances. Higher outstanding balances typically correlate with higher DSO, indicating slower collection of accounts receivable.