Cash keeps the lights on, not just the revenue you book on paper. The billings-to-collections ratio shows exactly how well you turn invoices into money in your account. It highlights the gap between what you bill and what you actually collect to give you a real view of your runway and working capital.
This metric confirms that your collections process works and that your credit policies are efficient. You ensure consistent cash flow and protect your ability to operate smoothly when you get this number right.
In this guide we'll break down the billings to collection ratio, cover benchmarks, discuss pitfalls and show how to setup Runway to calculate it for you.
Understanding the metric and its impact
The billings-to-collections ratio compares the money you’ve collected with the invoices you sent out.
Timing is an important factor. You might bill $100,000 in January, but if the customer’s on net-60, you’ll see the cash in March. Revenue shows up on your income statement when recognized, but it’s your cash flow statement that tracks when money hits your account. The billings-to-collections ratio helps you follow that conversion.
This ratio connects directly to other important financial metrics:
- Influences days sales outstanding (DSO). If your ratio dips, DSO usually rises. Both show how much cash is tied up instead of being available for hiring, growth, or covering costs.
- Shows revenue quality. High billings with low collections can point to customer credit issues, billing disputes, or even product challenges. You’ll spot problems here faster than in your revenue numbers.
Why billings-to-collections is important to track
To forecast cash flow well, you need to know how much of your billed revenue turns into cash and when. The billings-to-collections ratio gives you that insight. When you can predict what’s coming in, you can plan hiring, pay vendors on time, and invest with confidence.
Working capital management gets easier when you’re on top of collection patterns. Every day you shorten your cycle means more cash you can put to work. For example, if you sell $10,000 on credit each day and improve your ratio by 10 points, you unlock serious working capital. Check out our average collection period guide for more.
This ratio is a great way to check if your credit policies are helping or hurting. If you offer long payment terms to land deals but collections struggle, you’re basically offering free financing. The ratio shows you the real cost so you can decide if it’s worth it.
Track this ratio to measure your collections team’s performance. Break the numbers down by collector, customer type, or payment method. You’ll see exactly which changes and process tweaks move the needle.
Accurate cash forecasts depend on knowing more than just what you bill. You need to know how much of that turns into cash and when. This metric provides the conversion factor you need for solid planning.
Common approaches to calculation
The most direct method divides total cash collected by total invoices issued in a period. If you billed $500,000 in Q1 and collected $425,000, your same-period ratio is 85%. It's simple, but it doesn't consider payment terms.
Collection Ratio = (Total Cash Collected / Total Invoices Issued) x 100
The aging-adjusted method shows efficiency across different receivable buckets. Calculate collection rates by invoice age, such as current, 30 days, or 60 days.
Aging Bucket Rate = (Collected Amount in Bucket / Total Receivables in Bucket) x 100
You might see 95% collected for under 30 days and only 60% collected for over 90 days. The weighted average gives you a real look at effectiveness across your AR.
The cohort-based approach tracks invoices from one period through their full collection lifecycle. You track all invoices from January to see what percentage you collect after 30, 60, or 90 days. If January’s 90-day rate is 92% but March drops to 85%, you know something changed fast.
Cohort Recovery % = (Cash Collected from Cohort / Total Original Cohort Value) x 100
The net billings method leaves out credits, refunds, and adjustments from both the top and bottom line. Instead, you compare net collections to net billings.
Net Collection Ratio = (Net Collections / (Gross Billings – Credits – Refunds)) x 100
For example, bill $500,000, issue $50,000 in credits, and net billings stand at $450,000. If you collect $400,000, your net ratio is 89%.
The rolling average method uses trailing periods, like three or six months, to smooth timing swings and seasonality. Rather than match January billings to January collections, you look at the last three months of each.
Rolling Average = (Sum of Collections over Period / Sum of Billings over Period) x 100
This works well for lumpy billing cycles or seasonal businesses since rolling averages reveal your true pattern.
Key considerations when measuring billings vs. collections
The first step is deciding what counts as a billing. You can use issued invoices, contracted amounts, or recognized revenue. Most folks use issued invoices, since that’s what triggers payment. Contracted amounts may not match invoice timing, and GAAP revenue recognition can run on a different schedule. See our revenue recognition guide for details.
Pick the right collection window. Same-period (January billings vs. January collections) shows immediate efficiency but ignores standard payment terms. Lagged windows (January billings vs. February-March collections) better reflect net-30 or net-60 terms. Tracking ultimate collection rates (January billings vs. all eventual collections) tells you the final story, but takes time.
Choose a measurement period that serves your goals. Monthly tracking gives fast feedback but can jump around. Quarterly data smooths things out but delays your response. Trailing twelve months offer stable benchmarks but can hide recent shifts. Many use monthly tracking and rolling averages for balance.
Handle prepaid contracts and annual upfront payments with care. If a customer pays a year upfront, all your collections land at once. Your ratio may soar past 100% that month, then zero for the rest. Either leave out prepaids or spread that amount over the contract period to match revenue recognition.
Segmentation is powerful. Break down collections by customer segment, contract type, or payment method. For instance:
- Enterprise customers on net-60 pay differently than SMBs using credit cards
- Subscription revenue collects one way, usage-based another
- Payment culture can shift across geographies
Segmentation points you where action matters most.
Partial payments and payment plans need clear treatment, too. If you bill $10,000 but accept a $2,000 monthly plan, do you count the full $10,000 as billed, or just the current installment? Most teams track the full amount but measure collections against what’s due now, keeping the ratio accurate.
Currency adjustments matter for global businesses. If exchange rates drop between billing and collection, your ratio will too (but it’s not a collection issue). Consider locking in rates at billing or adjust for fluctuations.
Decide how to treat disputed invoices, credits, and write-offs. Do you count disputed invoices as billed? Back out credits from billings, or count as negative collections? Most teams skip undisputed amounts from billings until resolved and treat credits as billing adjustments to keep things clear.
If you have a mix of subscription, usage-based, and one-time charges, track them separately. Subscription billings often collect at 95% or higher. Usage-based invoices may face more disputes. One-time services can run on longer terms. Blending distorts the picture, so track separate streams then run a weighted average if necessary.
Benchmarks and industry observations
Healthy SaaS companies with annual prepaids typically see 95-100%+ billings-to-collections ratios, thanks to upfront cash. With net-30 terms, target 85-95% same-quarter collection rates. Some invoices will go past quarter’s end, but most land within 30-45 days of billing.
Enterprise sales on net-60 or net-90 terms may show 70-85% ratios in the billing period, with most catching up next period. That’s fine if it’s consistent. Ultimate collection rates for enterprise business should still reach above 95%.
SMB companies that collect by credit card often top 98% ratios. Automated processing catches delays and makes payment failures visible. If your SMB ratio dips below 95%, watch for product or billing issues or payment failures.
Staying above 80% signals your collections and process are working. Certain industries, like construction with retainage, naturally run lower, but most B2B businesses should collect at least 80% within the billing period and above 95% eventually.
Best-in-class teams keep less than 5% gap between billings and ultimate collections. Bill $1 million and collect at least $950,000—that’s the target. Anything above 5% points to issues with credit screening, billing accuracy, or collections process.
Always track this ratio with DSO. Healthy B2B companies typically see 30-45 days DSO. When DSO rises, working capital tightens. The ratio tells you collection efficiency, DSO shows how fast you collect. Both matter.
Most finance teams check this metric weekly or every other week, then report monthly. Weekly checks catch changes quickly. Monthly reports share stable trends with leadership. Quarterly works for strategy but moves too slow for daily management.
Pitfalls to avoid
- Comparing ratios across periods with big changes in payment terms or customer mix without normalizing data creates false trends. Always segment by payment terms or customer type when comparing.
- Measuring within the wrong window for your actual payment terms makes performance look worse than it is. Match your measurement window to typical payment timing.
- Leaving out credits and adjustments from billings but including the original invoice gives you artificially low ratios. Be consistent and compare net to net or gross to gross, not a mix.
- Don’t mistake timing-related collection delays for actual collection issues. Customers who pay a bit late aren’t a collection risk, just an opportunity for terms negotiation. Track invoice aging on its own.
- Be consistent with your billing cutoff dates. Moving invoices between months makes trends impossible to follow. Use a clear rule, then stick with it.
- One large enterprise deal on long payment terms can skew your ratio. Segment or call out large deals for more accurate views.
- Make sure to segment by customer, geography, or payment method to spot true weak points. If overall numbers don’t match the story on the ground, break them down further.
- Track disputed invoices and collections separately. Address disputes as a process, not as a collections problem.
- If a customer disputes an invoice and you agree to a lower amount, treat the new, lower billing as collected in full. The difference is a billing correction, not a collection miss.
- Keep early payment discounts, late fees, and adjustments in mind. Offering a 2% early payment discount isn’t a collection miss if customers use it. Either adjust billings for discounts or track take-rates.
- Seasonality in billing? Use rolling averages or year-on-year views, not just monthly swings.
- For currency translation, track collections in the original currency or adjust for rate differences between billing and payment.
- The ratio can flag problems, but always connect it to causes (billing accuracy, credit quality, collections team workload). Dig for details, not just surface trends.
- Flag one-time events like a major customer bankruptcy. Don't let outliers mask your operational performance.
How to track billings-to-collections ratio in Runway
Start by connecting your accounting system to Runway. You can sync with QuickBooks Online, Xero, NetSuite, and more. Your income statement and balance sheets import automatically, including AR and revenue data.
If you use a billing platform like Stripe, plug it right into Runway. You’ll get invoice dates, amounts, payment dates, and customer segments. It’s also easy to import AR aging reports or collections data directly from your accounting tools.
Configure your databases to include the right drivers. For billings, use revenue or invoicing data. Make sure you can filter by invoice date, customer type, payment terms, and billing type. For collections, use your cash receipts or payment data with filters for payment date, payment method, and customer.
Set up drivers for both billings and collections. For billings, create a driver that sums invoices by month, filter to credit sales only, not cash sales. For collections, sum cash receipts by month and match to the original invoice period when possible.
Now, build your billings-to-collections ratio formula. At its simplest: Collections / Billings. Runway lets you reference full database columns and filter them in the formula editor. Add filters for customer type, payment terms, geography, whatever helps clarify trends.
If you want a rolling average use Runway’s date functions. For example:
sum(Collections, Date = Last 3 months) / sum(Billings, Date = Last 3 months)
You get a trailing ratio that smooths out monthly bumps automatically.
If you prefer a cohort-based view, make separate drivers for each invoice group. Track a January cohort and measure collections over time such as 30, 60, 90 days. Runway makes it easy to slice and see collection rates by invoice period.
For an aging-adjusted model, bring in AR aging data and create weighted collection rates by each bucket. You can build formulas for current, 30-day, 60-day, 90+ day invoices, then blend into a weighted average based on your portfolio.
Set up segmentation by customer, geography, or payment method. Make sure your databases share the same structure and use lookup tables if needed. In the ratio formula, use “This Segment” filters; your ratios will always match up by segment.
Handle actuals and forecast separately. Your actuals pull from real billing and collection data. Your forecast models expected collections based on history, payment terms, or changes in policy.
Build a simple dashboard to track your ratio over time. Show the overall trend, then drill down by customer or region. Place DSO right next to your billings-to-collections ratio for a quick pulse on collection efficiency and speed. Layer in AR aging for more context.
Create scenario models to see the impact of policy changes. What if you tighten credit terms, offer discounts, or switch to annual billing? Use Runway’s scenario planning to model results before you roll out changes.
Use drill-downs to investigate shifts. If your ratio changes in a month, check the source—specific customers, segments, or invoice types. Move easily from the big picture right to the details.
Set up alerts for changes that matter. If your ratio drops below a set line or changes sharply, Runway notifies you right away. That way, you can act before it affects your team’s momentum.
Share insights easily. With Runway's reporting, you can build a page that tells the whole story—collections performance, payment terms, customer mix, operational changes. Let your teammates explore without worry of breaking anything important.
It pays to review and refine as your business changes. Add new segments, adjust formulas, or tweak measurement windows as you grow. Runway makes updating simple without tearing down your whole setup.
Drive your financial efficiency forward
The billings-to-collections ratio puts a spotlight on how well you’re converting invoices into cash. Tracking this metric, segmenting it, and linking it to real operations helps you improve working capital, predict cash flow, and spot, then solve, problems before they get big.
Runway gives model owners, number crunchers, and anyone handling cash flow control and flexibility. Build custom ratios, create segments, run scenario models, and share actionable insights all in real time and without spreadsheet worries.
Ready to forecast better and take full control of collections? See how Runway lets you track your billings-to-collections ratio and key cash flow metrics with real flexibility and depth.