Outstanding Balance: A B2B Guide to Managing A/R and A/P 

In corporate finance, an outstanding balance is any amount of money that is due but has not yet been paid. For any B2B business, managing these balances—both the money owed to you by customers and the money you owe to suppliers—is a crucial aspect of financial health. 

An inability to collect outstanding payments can signal underlying issues to creditors and investors, while failing to settle your own debts can damage vital supplier relationships. This guide explores what outstanding balances mean for your business, how to monitor and manage them effectively, and how to protect your most critical balances from risk. 

Outstanding balances fall into two primary categories that define your operational cash flow: 

1. Owed to You: Accounts Receivable (A/R) 

When you sell goods or services and issue an invoice, the amount due from your customer is an outstanding balance recorded as an Account Receivable. The total of all unpaid customer invoices constitutes your A/R balance. This is an asset, but it's an asset at risk until the cash is in your bank. 

2. Owed by You: Accounts Payable (A/P) 

When you purchase goods or services from your suppliers on credit, the amount you owe them is an outstanding balance recorded as an Account Payable. Your A/P balance represents your short-term debts to suppliers and other creditors. 

Effectively managing the flow between A/R and A/P is vital. 

• Cash Flow & Working Capital: If your customers pay you slowly (high A/R balance) while you have to pay suppliers quickly (low A/P balance), your cash flow will be strained, tying up critical working capital. 
• Creditworthiness & Relationships: Consistently carrying large overdue A/R balances can signal poor credit control to lenders. Conversely, failing to pay your own suppliers on time damages your reputation and crucial business relationships. 

Instead of abstract calculations, successful businesses use standard KPIs to monitor their outstanding balances: 

Tracking Accounts Receivable with Days Sales Outstanding (DSO) 

DSO measures the average number of days it takes to collect payment after a sale is made. A lower DSO is better. It means you are collecting cash quickly. A rising DSO is an early warning sign that your outstanding A/R balance is growing and may indicate collection problems or increasing credit risk. 

Tracking Accounts Payable with Days Payables Outstanding (DPO) 

DPO measures the average number of days it takes for you to pay your suppliers. A higher (but reasonable) DPO can be beneficial. It means you are holding onto your cash longer, which can help your working capital. However, a DPO that is too high or exceeds agreed terms can damage supplier relationships. 

For Your Accounts Receivable (Getting Paid Faster) 

1. Set Clear Credit & Invoicing Policies: Establish clear payment terms from the start. Invoice promptly and accurately to avoid administrative delays. 
2. Conduct Thorough Credit Checks: Before extending credit, assess your customer's financial health and ability to pay. 
3. Offer Incentives for Early Payment: Provide a small discount (e.g., 2/10 Net 30) to encourage prompt payment. 
4. Implement a Proactive Collections Process: Have a clear plan for following up on past due invoices, starting with polite reminders and escalating as needed. 

For Your Accounts Payable (Paying Strategically) 

1. Negotiate Favorable Terms: Align your payment terms with suppliers to your own cash collection cycle where possible. 
2. Prioritize Payments: Manage payments to take advantage of early payment discounts from your own suppliers if it makes financial sense. 
3. Maintain Good Communication: If you anticipate a payment delay, communicate proactively with your suppliers to maintain trust. 

The biggest uncontrolled risk in managing outstanding balances lies in your Accounts Receivable. A customer's failure to pay can instantly turn a valuable asset into a damaging loss. 

The Inherent Risk: When an Outstanding Balance Becomes Bad Debt 

Factors like customer insolvency, political instability, or simple default can prevent you from ever collecting an outstanding balance. While diligent internal management helps, it cannot eliminate this external risk. 

How Trade Credit Insurance (TCI) Secures Your A/R 

Trade Credit Insurance (TCI) is the ultimate strategy for protecting your outstanding receivables. It is an insurance policy that covers your business against the risk of non-payment by your customers. 

• Bad Debt Protection: If an insured customer fails to pay due to insolvency or other covered reasons, TCI pays you the outstanding amount, protecting your business from the loss. 
• Improved Cash Flow Confidence: With TCI, your A/R becomes a more secure and predictable asset, making cash flow forecasting more reliable. 
• Safer Business Growth: TCI gives you the confidence to extend credit to new customers and enter new markets, knowing your outstanding balances are protected. 
• Enhanced Access to Financing: Banks and lenders view insured receivables more favorably, which can improve your access to working capital financing.