How to Calculate WADO

Weighted average days overdue (WADO) is a metric used to calculate the average number of days your invoices are overdue, proportional to their value.

WADO can reflect the health of your accounts receivables and cash flow. If your WADO is too high, you might need to implement some strategies to ensure you get paid more promptly.

In this post, we’ll take you through a detailed definition of WADO and how to calculate it, as well as some tips for helping to keep your WADO down.

What is WADO?

Weighted average days overdue (WADO) is a metric which provides insight into the overall health of a company’s debtor book. It is a measurement of the average number of days invoices are left unpaid past the due date, weighted according to their value.

‍If you have a high WADO number, it’s probable that you have a lot of high-value debt, which can cause you serious financial problems if left unchecked. Not addressing aged debt can put you at risk of non-payment, when clients simply don’t pay at all. This can be a grave issues, so it’s imperative you act on any high-value overdue invoices!

Weighted average days overdue formula

To calculate WADO, you need to multiply the amount of each overdue invoice by the amount it’s time they’re overdue by (in days) and total them, then divide this figure by the sum of the values.

Here is the formula:

What WADO reveals about your business

If you have a high WADO, this indicates your business is suffering from late payments and potentially bad debt. Late payments can have a hugely negative effect on a business’s cash flow. In fact, sometimes it can be so severe it leads to businesses going bust.

If you find yourself in the position of having a high WADO, the best thing you can do is improve your invoice and debt collection processes. It’s also advisable that you begin credit checking clients before entering into business with them, and avoid potential clients with poor credit and a history of late payments.

How to decrease your WADO

Reducing your WADO comes down to having a good system in place for collecting payments on invoices. Some strategies for optimizing this system are outlined below:

• Drop customers that don’t pay - If your late payment issue is caused by just a few customers, it may be time to part ways with them.

• Carry out credit checks on clients - Before doing business with a client, it can be useful to run a credit check on them to ensure they’re good for the payment.

• Ask for payment upfront - A good way to avoid late payments is to ask for payment in advance of carrying out a service. This way, late payments are an impossibility.

• Send out payment reminders - Sometimes clients are late to pay on account of disorganization and forgetfulness. You can counter this by sending out notices to remind them to pay.

• Enforce late fees - You can often incentivize customers to pay on time through enforcing penalties on late payments.

• Offer rewards for early payments - Similarly, you can persuade clients to pay in advance of the due date by offering discounts for early payments.

We can help

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