What accounts receivable aging is
The receivables ledger lists every open invoice with its due date. The aging report, or receivables age analysis, summarizes it: for each customer it adds up the open amounts according to how many days have passed between the due date and the reference date, usually today or the end of the month.
It serves three different people. Treasury, to decide whom to chase today; the credit manager, to block a credit limit or ask for a guarantee; the head of finance and administration, to estimate how much of the receivables may never be collected. For all three the question is the same: is the delay concentrated or widespread, and is it getting worse?
The most common past-due buckets
| Bucket | What it contains | Typical action |
|---|---|---|
| Not yet due | Invoices not yet due | None; it weighs on the collection forecast |
| 1–30 days | Recently past due, often technical or process delays | Reminder, check that the invoice arrived and is correct |
| 31–60 days | Genuinely late | Formal reminder, contact from the sales rep |
| 61–90 days | Seriously late | Block or reduce the credit limit, repayment plan |
| Over 90 days | Credit at risk | Formal notice of default, collection, assessment of a write-down |
One choice comes before anything else: age is counted from the due date or from the invoice date. For chasing payments you use the due date, because a receivable 90 days past its invoice on 90-day terms is not late. Aging by invoice date, on the other hand, is for comparing customers on different terms and for reasoning about DSO.
Example: aging for ten customers
At month end, a company has 725 thousand euros of open receivables from ten customers. The aging by due date looks like this (amounts in thousands of euros).
| Customer | Not yet due | 1–30 | 31–60 | 61–90 | Over 90 | Total |
|---|---|---|---|---|---|---|
| Customer A | 120 | 35 | 10 | 0 | 0 | 165 |
| Customer B | 80 | 40 | 25 | 15 | 0 | 160 |
| Customer C | 60 | 0 | 0 | 0 | 0 | 60 |
| Customer D | 30 | 20 | 0 | 0 | 45 | 95 |
| Customer E | 45 | 15 | 5 | 0 | 0 | 65 |
| Customer F | 25 | 10 | 12 | 8 | 0 | 55 |
| Customer G | 40 | 0 | 0 | 0 | 0 | 40 |
| Customer H | 10 | 5 | 0 | 0 | 20 | 35 |
| Customer I | 20 | 8 | 3 | 0 | 0 | 31 |
| Customer J | 15 | 0 | 0 | 4 | 0 | 19 |
| Total | 445 | 133 | 55 | 27 | 65 | 725 |
| Share | 61.4% | 18.3% | 7.6% | 3.7% | 9.0% | 100% |
Read row by row, the table says something different from the total row. Everything over 90 days comes from two customers, D and H, and customer D alone accounts for 69% of that bucket: it is a problem with one name, not with the process. Customer B, by contrast, is past due in every bucket up to 90 days: it pays, but later and later, and it is the case to look at before it moves into the last column.
Aging or ageing?
They are the same thing: aging is the American spelling, ageing the British one, and both are in use, along with past-due analysis, receivables age analysis and aging schedule. Aging list and aged trial balance also refer to the same report. What matters more is that everyone in the company means the same thing by each bucket and by the reference date.
How to read it: concentration, trend, bad debt allowance
- Concentration: how much of the past-due balance, and above all of the over-90 bucket, comes from the top three customers. Concentrated past-due balances are handled with a phone call; widespread ones call for a review of invoicing, terms and reminders.
- Trend: the same aging captured at month end, month after month. If the 31–60 day share rises, next month the 61–90 share will rise. The trend by customer tells you who is slowing down before it becomes credit at risk.
- Past due against credit limit: a customer with a lot past due and its credit limit almost used up is the first to block or to cover with a guarantee.
- Bad debt allowance: many companies estimate expected losses by applying to each bucket a percentage drawn from their own history of unpaid invoices.
| Bucket | Amount | Example percentage | Write-down |
|---|---|---|---|
| Not yet due | 445 | 0.5% | 2.23 |
| 1–30 | 133 | 2% | 2.66 |
| 31–60 | 55 | 5% | 2.75 |
| 61–90 | 27 | 15% | 4.05 |
| Over 90 | 65 | 40% | 26.00 |
| Total | 725 | 5.2% | 37.69 |
From the Excel file to a report every morning
In most companies the aging report starts like this: at month end someone exports the receivables ledger from the ERP, splits it into buckets in a spreadsheet and adds the credit limits taken from another file. By the time the picture reaches the credit committee, the worrying cases are a few weeks older, and every month the spreadsheet is rebuilt from scratch.
In Muvia, open items and collections arrive from the ERP with an incremental copy every night, credit limits as an Excel file. A query defines the buckets once and becomes a dataset with stable fields, which the CFO's page, the alarms and the reports all read the same way. The Overdue receivables, aging and DSO use case shows the page with aging by business unit and past due by customer, refreshed every morning; with scheduled PDF reports the same picture reaches the committee by email, without anyone putting it together again.
Aging and DSO
DSO (days sales outstanding, the average collection period) sums up receivables in a single number: how many days of sales are still to be collected. The aging report shows what that number is made of. They work together: a rising DSO can mean customers paying later, in which case the aging shifts to the right, or simply a month of high sales, in which case only the not-yet-due column grows.
That is why DSO calculated with the countback method, which attributes receivables to the most recent sales, is more reliable than the simple formula in months with uneven sales. The guide to DSO calculation shows both formulas and a calculator.
Frequently asked questions
It is the report that splits open customer receivables by how long they are past due, usually not yet due, 1–30, 31–60, 61–90 and over 90 days, by customer and in total. It shows how much credit is late, for how long and with whom.
For chasing payments and assessing risk you use the due date, because it tells you how late the customer really is. Aging by invoice date is for comparing customers with different payment terms.
For the credit committee a month-end snapshot is enough, but treasury needs the aging updated at least every working day: a collection or a new due date changes the order of the reminders.
A common method applies to each past-due bucket a percentage of expected loss drawn from the company's history of unpaid invoices, higher for the older buckets, and assesses receivables from customers in known difficulty separately. The percentages should be agreed with whoever prepares the financial statements.