What Is the 10 Rule for Accounts Receivable? | Late Payment Strategy

What Is the 10 Rule for Accounts Receivable? A Practical Look at Managing Late Payments

Accounts receivable (AR) is one of the most critical parts of your bookkeeping — and it’s also one of the easiest areas to lose control of if you don’t keep an eye on ageing invoices.

That’s where strategies like the 10 rule for accounts receivable come in. But what exactly is it?

The “10 Rule” Explained

The 10 rule for accounts receivable is a simple guideline that helps business owners keep AR risk in check:

If more than 10% of your total receivables are over 60 days past due, your business may be heading into cashflow trouble.

This rule doesn’t come from formal accounting standards — it’s more of a best-practice benchmark used by finance professionals and CFOs to spot red flags early.

Why the 10% Threshold Matters

Let’s say your business has $100,000 in total outstanding invoices. If more than $10,000 of that amount is 60+ days overdue, it suggests:

• Clients may be struggling or ignoring payment terms

• Your collections process is too slow

• You’re over-extending credit without checks

• Cashflow is at risk of becoming unstable

Even profitable businesses can face cash shortages if they let old receivables pile up. The 10% rule gives you a clear early-warning sign to act before problems snowball.

How Business Owners Can Use This Rule

1. Run Regular AR Ageing Reports

Use your accounting software (e.g., Xero or MYOB) to run a monthly AR ageing summary. This shows you:

• Total receivables

• What’s current (0–30 days)

• What’s overdue (30+, 60+, 90+ days)

Look at the 60+ day column and check whether it exceeds 10% of the total.

2. Prioritise Follow-Ups on Aged Debts

Once invoices hit 45–60 days overdue, escalate your follow-up. That might include:

• Phone calls instead of just emails

• Temporary hold on further work

• Updated payment arrangements

The longer the invoice remains unpaid, the harder it becomes to collect.

3. Review Your Payment Terms

If you're regularly breaching the 10% threshold, your payment terms may be too generous. Consider:

• Switching to 7 or 14-day terms instead of 30

• Requiring deposits or part payments upfront

• Offering small discounts for early payment

Small adjustments can shift your cash position dramatically.

A Real-World Example

Imagine a small building services company in Mackay with $40,000 in total outstanding invoices. Their AR report shows:

• $28,000 is less than 30 days old

• $6,000 is 31–60 days overdue

• $6,000 is 60+ days overdue

That means 15% of their receivables are over 60 days. Under the 10 rule, that’s a warning sign. The owner should immediately review those accounts, chase payment, and reassess their credit policies.

Why This Rule Isn’t Just About Numbers

The 10 rule also serves a cultural purpose. It helps set internal expectations — for your team, your clients, and your financial partners — that overdue invoices are not business as usual.

It tells you when to:

• Pause credit to repeat offenders

• Introduce more structured payment processes

• Ask whether certain clients are worth keeping

Your business doesn’t exist to provide free finance. The 10 rule is a line in the sand that helps you protect your revenue and sanity.

Final Thoughts

So, what is the 10 rule for accounts receivable? It’s a straightforward principle that says if more than 10% of your receivables are older than 60 days, it’s time to act.

It’s not about being rigid — it’s about being aware. Businesses that monitor their ageing AR and stay under this threshold tend to enjoy stronger cashflow, fewer write-offs, and better client discipline.

Need help running your AR reports or setting up follow-up workflows? Justwise Accounting can help you take control of your receivables — before they become a liability.