What is debtor risk?
Short answer: debtor risk is the risk that a customer fails to pay, pays only part of the amount due or pays late for goods or services supplied. It affects both your profit (write-offs) and your liquidity (money coming in later).
How to calculate your exposure
Your maximum exposure is the total outstanding balance plus orders not yet invoiced for each customer. Two key metrics to track monthly:
- DSO (Days Sales Outstanding) = (accounts receivable balance / credit sales) × number of days
- Concentration = your five largest debtors' share of the total balance
With a DSO of 62 days against agreed terms of 30 days, you are financing an extra month of working capital for your customers on average.
The real cost of one uncollectable invoice
| Net margin | Uncollectable amount | Additional revenue needed |
|---|---|---|
| 5% | €10.000 | €200.000 |
| 8% | €10.000 | €125.000 |
| 15% | €10.000 | €66.667 |
That simple calculation makes prevention almost always cheaper than debt collection.
Six measures that work
- Screen before supplying, not after the first payment reminder. A credit check when accepting a customer takes minutes; debt collection takes months.
- Use credit limits for each customer and have your ERP system block orders when limits are exceeded.
- Tailor payment terms. New or financially weak counterparties: advance payment or iDEAL. Strong counterparties: 30 days.
- Monitor actively. Enable alerts for insolvency notices and deteriorating payment behaviour among your top-20 debtors.
- Keep invoicing accurate and timely. Incorrect invoices are the most common reason for late payment.
- Include retention of title in your terms and conditions and refer to it on the invoice.
Where credit information makes the difference
Without information, every acceptance decision is an estimate. With a report for each debtor, you know the basis for your limit, can explain it to sales and review it at fixed intervals. This makes your debtor management policy traceable rather than dependent on individuals.
Frequently asked questions
What is an acceptable write-off percentage? This varies by sector; many B2B businesses aim for less than 0,5% of revenue.
Does credit insurance help too? Yes, for the residual loss. Insurers generally require you to carry out your own credit assessment and apply a limit.
From explanation to a company file
- Check a company's creditworthiness
Combine registration details, annual accounts, payment history and insolvency information before doing business.
- Credit report: example and request
View a clearly fictional file, its sources and limitations, and request credit information.
Sources and scope
Examples and policy choices in this article are illustrative, not a current quotation, fixed standard or financial or legal advice. The editorial revision date relates to the summary, structure and source references; it is not a reference date for the underlying data.
| Primary source | What is it used for? |
|---|---|
| KVK (Dutch Chamber of Commerce) — checking business partners | Company identification and checks on business partners. |
| De Rechtspraak — Central Insolvency Register | Official insolvency notices and available public reports; check the relevant entity and the date of the court ruling. |
Source links support the topic mentioned, but do not automatically substantiate all percentages, time frames or examples in this article. Check current terms and rules with the responsible authority.
Request credit information with sources and reference dates
