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Credit Crunch

Aug 1, 2008 12:00 PM, By Beck Ireland, Staff Writer

Accounts receivable — aging

Aging is accounts receivable analyzed by due date. Typically, the due dates are grouped by monthly periods, such as 30-, 60-, 90- and 120-plus days past due. If your 120-plus aging is usually under 1% of total receivables, but has recently jumped to 5%, that indicates you are developing a collections problem.

Accounts receivable — days sales outstanding

Days sales outstanding is the accounts receivable divided by the average daily sales. It's a measurement of how quickly a business collects its account receivables, so the lower the number the better.

Inventory

Inventory is usually the cost of the products a company holds for resale to customers. It includes not only finished goods, but also raw materials and goods in production.

Inventory — slow-moving stock

These are products in inventory that are selling at lower-than-expected rates. If a business expects to keep a product in inventory for an average of no more than 60 days before selling it, then a product with 6 months worth of sales in stock would be slow moving.

Inventory — stock-out rate

A stock-out happens when a customer order cannot be filled because there is no product available. A “stock-out rate” is the number of times this happens for every 100 product orders. A high stock-out rate may create a risk of losing sales to customers who are not willing to wait for the business to replenish its stock of inventory.

Source: AllBusiness.com Buyer's Guide, “Jargon Watch: Cash Flow Terms”

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