The Phantom Invoice Problem
Your accounts receivable balance shows $145,000 outstanding. Your bookkeeper shows you the aging report. Three clients account for $80,000 of that — all invoices over 180 days old.
One client disputed the invoice 5 months ago and you haven't followed up. One client went out of business 3 months ago. One is in a payment arrangement that was set up verbally but never updated in the system.
Your "real" collectible AR is probably $65,000 — less than half of what the books show. Your reported AR doesn't reflect reality.
How AR Data Gets Corrupted
Unapplied payments: A customer pays $5,000 and the payment is posted to the wrong invoice. The correct invoice remains "open." Now you have phantom AR and an unapplied credit simultaneously.
Credits not issued: A customer receives a damaged product and asks for a credit. The credit is agreed verbally but never entered. The invoice remains open. The customer doesn't pay it. Both sides think the other is wrong.
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Disputed invoices not flagged: An invoice is disputed — the customer says the work wasn't completed or the amount is wrong. The dispute is known internally but not reflected in the accounting system. The AR ages silently.
Write-offs not taken: Invoices that are genuinely uncollectible remain on the books for years because no one has authorized the write-off. The AR balance is overstated.
The AR Quality Review Process
Monthly, run an aging report and review every invoice over 90 days:
For each over-90 invoice:
- Is this actually outstanding or is there an unapplied payment?
- Is there a dispute, credit, or payment arrangement that should be noted in the system?
- Is collection activity underway? What's the status?
- Is this collectible? If not, is it time to write it off?
Every invoice over 90 days needs a status note in your system — a date-stamped comment showing when it was last reviewed and what the current situation is.
AR Data Quality Metrics to Track
- Average days sales outstanding (DSO): Total AR / (Annual revenue / 365). Track this monthly. Upward trend means your collections are slowing.
- % of AR over 90 days: This bucket contains your highest write-off risk. Track it monthly.
- Write-off rate: Total write-offs / Total invoiced. If this is rising, your credit policy or invoice accuracy has a problem.
- Disputed invoice rate: Total invoices in dispute / Total invoices. Rising disputes indicate billing accuracy or customer relationship problems.
Sohovi tracks quality trends across runs and alerts you when a metric — null rate, duplicate count, score — moves outside its normal range.
