Your Aging Report – A Beginner’s Guide

Accounts Receivable Aging Report-01

What Is An Accounts Receivable Aging Report?

Your Aging is a report that lists all of your open or unpaid customer invoices. The age is determined for both payables and receivables by counting the number of days since the invoice was issued.

It is typically organized alphabetically by customer and then by the invoice date. (See how is the aging organized and samples below for more information)

Paid invoices will not be reported on your Aging, however, unless it’s written off, bad debt will remain. Often, small business owners won’t write off their bad debt, probably because they are hopeful that they can still somehow collect the money. For the most accurate reflection of the business’s financial health, bad debt should be written off, removed from the Aging, and submitted to a collection agency.

How is the Aging Report Used?

The accounts receivable aging report is one of the factors considered when evaluating the health of a business. It tells you, the business owner or anyone needing to evaluate a company’s financial health, how much money is owed to the business, how much is past due, and how much is bad debt or at risk of becoming bad debt. Your manager can use the same numbers to estimate the allowance for doubtful accounts and to evaluate the efficacy of your collection process.

For an accounts receivable professional (collector), the Aging report tracks open invoices and lets you locate past due invoices. By showing the amount owed by each customer and how old each invoice is, you can decide where your collection efforts should be focused. Appropriately focused collection efforts will improve your efficiency and effectiveness and your company’s cash flow.

How is the Aging Report Organized?

Your aging report, also known as the aging schedule, is generally organized alphabetically by customer name and date range. Each date range represents 30 days. So your customers will be listed alphabetically on the left. To the right of each customer, open invoices are listed in the appropriate column.  

So, current invoices in the current column, invoices 1 to 30 days beyond terms in the 30-day column, etc. It sounds complicated, but it’s simple when you see it in action. (see examples below)

Most Agings will have four or at most five columns. These include a current column, a 30-day column, a 60-day column, a 90-day column, and an over 90-day column. Each column will have a total at the bottom.   

It can be helpful to calculate the percentage of the total of each column. As an extreme example, if you see that 50% of your receivables are over 90 days old, you know you’ve got a problem and have some work to do. On the other hand, you’re doing a good job if no invoices or a low percentage of invoices are over 90 days.  

On the other hand, other hand (you do have three hands, right?) too good a job and you might be restricting sales. Consider reviewing your collection policy and how strictly you are enforcing terms – you don’t want to go overboard. These are generally management decisions, but as an accounts receivable professional, you’ll want to understand what the business owner or controller might be looking at.

How do I Create an Aging Report?

Back in the day, and I’m not going to tell you how far back, we’d manually create an aging by reviewing each account ledger and writing the invoice amount in the appropriate column on a columnar pad. There was no Excel back then. It would take me three full days every month at one company.

Now, we don’t create an aging; we generate one. It’s a simple matter of choosing from a reports menu in your accounting software. You can run a summary aging or a detailed aging in most programs. A summary aging will list each customer alphabetically, one line per customer (see sample agings below) and the total that customer owes. The total amount of each column is calculated at the end of each column.

For collections purposes, you’ll want to run a detailed aging. The detailed Aging will have the invoice date, invoice number, and the amount due for each unpaid invoice owed to your company. Each invoice is listed in the appropriate 30-day column based on the established payment terms. With this information, you can decide where to focus your efforts.

How do I use the Aging Schedule to Improve Collections?

Okay, this get’s us down to the nitty-gritty. The aging schedule will inform your collection process. In other words, it will tell you what to do and where to focus.  (aging schedule is another way to say aging report – don’t let the change in language confuse you)

Before we get into the details, let’s talk about attitude. Late payments are a normal, expected, and unavoidable part of doing business. Late payments are not a reason to think poorly of a customer or be rude to a customer. Collection practices that include snippy notices and tone of voice will produce poor results relative to a well-organized and consistently executed collection process. This is why it’s important to have a well-thought-out credit policy, but that is a discussion for another day.

Naturally, there’s more than one way to do this. Overly anxious owners will direct you to contact your highest accounts first or even exclusively. But to do the job competently and thoroughly, you’ll need to reach out to every customer with a overdue invoice or late payment.

Click here to review my entire process in detail. For now, this is the gist of it.

The Process

Consult your credit policy for when to start making contact, but a good rule of thumb is ten days after the due date. Ten days is enough time to allow for weekends, holidays, and various payment schedules.

Start at the beginning of the accounts receivable Aging and work your way from start to finish contacting every customer with a payment that is more than ten days late.

Contact accounts payable. I usually start with an email. If you don’t have an email address, make a call and be sure to get an email address for follow-up. Your accounting software may have a payment reminder process already set up; check it out; you might be able to start there.  

Mark the Aging in the left margin to note that you’ve made contact; a simple dash or checkmark will work. (This is to avoid confusion, so you know who you’ve already contacted)

I like to start with email because it is less disruptive to the accounts payable department and gives them a chance to reply in their own time without interrupting their work. I generally save calls for unresponsive customers and those for whom I don’t have an email address. Here is my process.

    1. Send the first email and schedule a follow-up five to seven days later. Be sure to either attach a copy of the invoice or include a list of open invoices.
    2. Five to seven days later, send a 2nd request email – schedule a follow-up for three to five days later.
    3. Three to five days later, call anyone who hasn’t responded, send a 3rd request email, and schedule a follow-up three days later. (Anyone who hasn’t responded by this time is a problem – consult your credit policy, manager, or me for next steps)

Document every attempt and record the results of your efforts in your CRM (customer relationship management software).

Need More Detail?

For a more in-depth discussion of how to maintain healthy cash flow and collect your aging accounts as well as how to schedule calls, and what to document read my article titled Accounts Receivable Collections – A Guide.


What is an Average Collection Period?

The average collection period is the average number of days it takes a business to collect its accounts receivable.  It is one of six primary calculations used to determine short-term liquidity, meaning the ability of a company to pay its bills as they come due.

How Do I Calculate Average Collection Period?

To calculate your average collection period, you need three numbers.

  1. Average accounts receivable: Also called the amount of receivables or AR owed to your business within a particular time period.
  2. The number of days in the respective time period of your average amount of receivables. So you might calculate for the year, 365 days or the quarter, 90 days.
  3. Total credit sales you’ve made in the respective time period of your average amount of receivables. So the total sales offered on credit during the same time period (don’t include COD sales)

The formula is accounts receivable x the number of days in the period you’re considering / total credit sales. Or use this great calculator I found.

What is Allowance for Doubtful Accounts?

Allowance for doubtful accounts is another term for Bad Debt Reserve – it’s an estimate of the amount of accounts receivable that customers will not pay.

What is AR and What is an AR Aging Report?

AR is an abbreviation for Accounts Receivable, and AR Aging Report is an abbreviation for Accounts Receivable aging report.

Leave a Reply