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The "10 Rule for Accounts Receivable" is a collection management guideline that states if 10% or more of a customer's total outstanding invoices are past due, the entire Bookkeeping Services in Knoxville (https://www.aenten.com/us/locations/knoxville/) should be flagged as high-risk.

This rule is a proactive measure used by credit and collections teams to simplify the identification of potentially problematic customers and escalate collection efforts before the entire receivable balance becomes uncollectible.


Significance in Accounts Receivable Management

Early Warning System: It helps businesses move beyond standard AR aging reports (which only track individual invoice due dates) to assess the holistic risk of a customer relationship.

Proactive Collection: Once the 10% threshold is crossed, it justifies escalating the collection strategy, which may include contacting senior management, temporarily freezing new credit, or even initiating formal collections procedures.

Allowance for Doubtful Accounts: For financial reporting, the rule helps companies conservatively estimate their potential losses. If a high-risk Accounting Services Knoxville (https://www.aenten.com/us/locations/knoxville/) is identified, the business may increase its Allowance for Doubtful Accounts to reflect a higher probability that the debt won't be collected, thus providing a more accurate picture of the company's financial health.

Credit Policy Tool: It provides a clear, quantitative benchmark for managing credit risk and deciding whether to continue extending credit to a slow-paying customer.