What is collection efficiency in AR?

A common formula: cash collected in the period divided by beginning AR plus credit sales in the period, multiplied by 100. A result near 100% means collections are keeping pace with new sales. A result below 90% means the AR balance is growing faster than cash is arriving — which eventually becomes a cash-flow problem.

What drives collection efficiency? Primarily: how quickly the first follow-up happens after the due date, how many attempts are made before giving up, and whether the customer has a clear, frictionless way to pay. Businesses with high write-off rates and long DSOs almost always have low collection efficiency. The root cause is usually process, not customers — the same customers pay faster when the follow-up is consistent.