Weighted average days overdue (WADO) is a metric that demonstrates the average number of days your invoices are overdue, weighted by their value
. WADO gives a good indication of the overall health of your debtor book. If your WADO is high, you may need to improve your debt collection process.
To calculate WADO, we sum the product of the amount of each overdue invoice by their overdue age and then divide it by the sum of their amounts
The formula looks like this:
(Invoice 1 value x Invoice 1 days overdue) +…+ (Invoice N value x Invoice N days overdue)
(Invoice1 value +…+ Invoice N Value)
= Weighted Average Days Overdue
For example, in the table below, the calculation would be:
(396 x 95) + (6187.50 x 42) + (234 x 30) + (914.55 x 15) + (703.63 x 2)
(396 + 6187.50 + 234 + 914.55 + 703.63)
If you have a high WADO, it means your business is suffering from late payments and/or bad debt. Late payments can have a detrimental impact on a business’s cash flow. In fact, they cause 50,000 UK businesses to close each year according to the Federation of Small Businesses.
If your WADO is high, you may need to improve your collections process and start credit checking your customers before agreeing to work for them.
The first step in reducing your WADO is establishing where the problems lie. If you’re a Satago customer, you can do this by visiting the Analysis section of the platform. Here you’ll see an overview of your debtor book and can determine:
Once you have answers to these questions, you can find a solution.
If the problem is isolated to one or two customers, it may be time to have a frank conversation with them. To gain a deeper understanding of why a customer might be paying late, you can download their credit report.
If a customer refuses to pay their invoices on time without a valid explanation, you should stop offering them credit.
If you’re experiencing late payments across the board, you should review your credit control process. Sending regular payment reminders to customers may be time-consuming, but it's the best way to ensure invoices are paid on time.
Satago’s automated invoice chasing software makes it easier to follow efficient credit control processes, giving you the best chance of being paid promptly.