Accounts Receivable Ageing: Who Owes You and for How Long

Sending an invoice is only half the job. The other half is knowing, at any moment, who still owes you money and how long they’ve owed it. An accounts receivable ageing report answers exactly that question, on one page. It’s one of the most useful reports a small business can run, and one of the least looked at, usually until a cash crunch makes someone dig through old emails.

This guide explains what the report shows, how to read it, and what to do about the invoices in each column.

What accounts receivable is

Accounts receivable (often shortened to A/R) is the total of invoices you’ve sent that haven’t been paid yet. It’s money you’ve earned, but it’s still in your customers’ bank accounts.

If you keep your books on the accrual basis, A/R appears as an asset on your balance sheet, because the income was recorded when you invoiced. If you keep them on the cash basis, unpaid invoices don’t appear in your income at all until they’re paid, but you still need to track them, or you’ll forget about them. Cash vs Accrual Accounting explains the difference.

The ageing buckets

An ageing report lists every unpaid invoice and sorts it by how far past its due date it is. The usual columns are:

• Current: not yet due.
• 1 to 30 days past due.
• 31 to 60 days past due.
• 61 to 90 days past due.
• Over 90 days past due.

Each row is usually a customer, with their unpaid invoices added up in each column, and a total for the customer at the end. The bottom row totals each column for the whole business.

Some reports age invoices from the invoice date instead of the due date. Either works, as long as you know which one you’re reading. Ageing from the due date is more useful for collections, because an invoice on Net 30 terms isn’t late on day 20.

A worked example

Suppose your report looks like this, in words:

• Harbor Dental owes $1,800, all current.
• Lane & Co. owes $2,400: $1,200 current and $1,200 that’s 1 to 30 days past due.
• Northside Gym owes $3,000, all in the 31 to 60 day column.
• Pine Street Bakery owes $650, over 90 days past due.

The totals are $3,000 current, $1,200 at 1 to 30 days, $3,000 at 31 to 60 days and $650 over 90 days, for $7,850 outstanding.

Reading it:

• Harbor Dental is fine. Nothing to do yet.
• Lane & Co. pays, but a bit late. One of their invoices slipped; a reminder is enough.
• Northside Gym is the real issue. It’s the biggest balance and it’s well past due. That’s the call to make today.
• Pine Street Bakery’s balance is small but very old. The odds of collecting fall as an invoice ages, so decide what you’re going to do about it rather than letting it sit.

How to read the report

A few habits make the report more than a list of names.

Look at the shape, not just the total

A total of $7,850 means little on its own. What matters is where it sits. Most of your balance should be in the current and 1 to 30 day columns. If the older columns are growing from one week to the next, collections are slipping, even if the total looks normal.

Watch individual customers

A customer who always paid on time and suddenly appears in the 31 to 60 column may be having trouble, or may simply have lost the invoice. Either way, it’s worth a conversation before you do more work for them.

Check for errors before chasing

Before you contact anyone, make sure the invoice really is unpaid. Payments that arrived but weren’t recorded, or were recorded against the wrong invoice, make the report wrong. Reconcile your bank account and match deposits to invoices before you send any reminder. Few things annoy a good customer more than a reminder for something they paid.

Look at it every week

Monthly is too slow: an invoice can move two columns between looks. A weekly glance, ten minutes on the same day each week, keeps things small.

Collection steps for each bucket

Every business sets its own approach, but a common, polite progression looks like this.

Current

Nothing, or a short courtesy reminder a few days before the due date on larger invoices. Make sure the customer has everything they need to pay: the right amount, your payment details, a purchase order number if they use one.

1 to 30 days past due

Send a friendly note the day after the due date with the invoice attached. Keep it short and assume it’s an oversight. If there’s no reply in a week, follow up by phone.

31 to 60 days past due

Talk to someone. Ask whether there’s a problem with the work or the invoice, and agree a date for payment. If the customer is struggling, a payment plan with specific dates is often better than nothing. Consider pausing new work until the balance is current.

61 to 90 days past due

Put the details in writing: the invoice numbers, amounts, dates and what was agreed. If your terms include a late fee, and it was agreed in advance and is allowed in your state, this is when it applies. Stop new work.

Over 90 days past due

Decide. The options are a final written demand, a collection agency, small claims court, or writing the invoice off. Each has costs, and the rules on collection practices and on courts vary by state, so it’s worth getting advice before you go further than a final letter. If you decide to write an invoice off, record it properly rather than deleting it, so your records show what happened and why. Your tax preparer can tell you how to treat it.

Preventing old receivables

The best ageing report is one with almost nothing in the right-hand columns. Most of that comes before the invoice is sent:

• Clear terms agreed up front. Invoice Payment Terms covers how to choose them.
• Deposits on larger jobs, so less is ever at risk.
• Invoices sent the day work is done, with a clear due date.
• Accurate invoices, because an invoice with a wrong amount or missing purchase order number tends to sit unpaid while nobody tells you. How to Write an Invoice That Gets Paid on Time has a checklist.
• Easy payment, with your payment details printed on the invoice itself.

Where Kemback fits

Small Business, part of Kemback Business, gives each company A/R and A/P ageing reports built from its invoices and bills. Payments are recorded against each invoice and matched to the bank deposit, so the ageing report reflects what has actually arrived, and sales by customer shows who your biggest accounts are. Kemback doesn’t process payments: customers pay you directly, and you record it.

For landlords, Rental Houses shows each tenant’s rent as paid, partial, late or upcoming, with a Rent late alert. See the pricing page for both add-ons.

This post is general information, not legal advice. Collection rules and court procedures vary by state; check with an attorney before taking legal action over a debt.

#accounts receivable #invoicing #collections

This article is general information, not financial, tax or legal advice. For decisions about your situation, talk to a qualified professional.