Accounts receivable aging explained: What it is, how it works, and how to calculate it

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Saiba mais 
  1. Introdução
  2. What’s included in an accounts receivable aging report?
  3. Creating and using accounts receivable aging reports
    1. Creating the report
    2. Analyzing the report
    3. Acting on the report
  4. How to calculate accounts receivable aging
    1. Sample calculation
  5. Benefits of accounts receivable aging

An accounts receivable aging report lists unpaid customer invoices and unused credit memos by date ranges, categorizing receivables by how long they have been outstanding and breaking them down into 30-day intervals (e.g., 0–30 days, 31–60 days, 61–90 days). This report helps businesses identify invoices that are overdue for payment and assess the financial health of their receivables. According to a 2022 analysis of 250,000 invoices sent using Due software, 63% of invoices for one-time payments were paid within 30 days of being issued, meaning more than one-third were eligible for an accounts receivable aging report.

This guide will cover what businesses should know about accounts receivable aging: how it works, how to create your own reports, and the benefits of accounts receivable aging.

What’s in this article?

  • What’s included in an accounts receivable aging report?
  • Creating and using accounts receivable aging reports
  • How to calculate accounts receivable aging
  • Benefits of accounts receivable aging

What’s included in an accounts receivable aging report?

An accounts receivable aging report typically includes the following elements:

  • Customer information: The customer or company name. This can also include contact details or an account number for reference.

  • Invoice details: The invoice number, the date it was issued, and the total amount due.

  • Aging categories: Aging categories reflect how long an invoice has been outstanding. Common categories are 0–30 days, 31–60 days, 61–90 days, and more than 90 days.

  • Amounts due: The amount due in each aging category per customer and the total amount due across all aging categories per customer. The report might also provide a grand total of all receivables due.

  • Credit memos: Reports might include details of unused credit memos, which provide a credit on an invoice.

  • Comments: Reports might include a comments or notes section detailing specifics of collection efforts, payment agreements, or other relevant information.

Creating and using accounts receivable aging reports

Creating the report

Businesses can either prepare aging reports manually via spreadsheets, or automate these reports via accounting or billing software that pulls data directly from the accounts receivable ledger. This software might also be able to send automatic payment reminders to customers. Some businesses may also integrate their aging reports with customer relationship management (CRM) systems to combine financial data with customer interaction data.

Depending on a business’s needs, aging reports can be customized to include additional information such as payment terms, past collection efforts, or notes on communication with the customer. Here are the basic steps of creating an accounts receivable aging report:

  • Compile invoices.
  • Set time intervals for categorization (e.g., 0–30 days, 31–60 days).
  • Categorize invoices by the length of time they have been unpaid.
  • Calculate customer balances for each category.
  • Calculate total balances for each category.

Update these reports regularly (many businesses choose a monthly cadence). This reflects the current status of accounts receivable and creates valuable documentation in the event of financial audits.

Analyzing the report

Schedule consistent reviews of the aging report, typically on a weekly or monthly basis, to keep a close eye on receivables and identify any overdue accounts early. Businesses use the report to assess the following areas of concern:

  • Delinquent accounts: Identify which customers are late on their payments and how long their invoices have been overdue. Focus on accounts that are significantly past due—these are your problem accounts that need immediate attention.

  • Credit policies: Evaluate the effectiveness of credit policies and practices, including clear terms for payments, penalties for late payments, and potential incentives for early payments. Frequent or large balances in the older categories might indicate policies that are overly lenient or not enforced effectively.

  • Bad debt: Assess the risk of bad debts. The longer an invoice remains unpaid, the less likely it will be paid: the 2022 Due analysis found that there’s a very low chance—only 18%—that an invoice will be paid if it’s not paid within 90 days of receipt.

  • Patterns or trends: Look for trends that may indicate broader issues such as frequent delays from specific customers, or issues with particular products or services leading to disputes and delayed payments. Note which aging periods are accumulating the most unpaid receivables.

Acting on the report

Use the insights gained from aging reports to refine credit policies, improve customer communication strategies, and enhance overall accounts receivable management processes. Based on the report, businesses might take the following actions:

  • Prioritize collections efforts: Use the report to prioritize your collections activities. Focus on the oldest debts first, as they have a higher risk of turning into bad debt.

  • Send payment reminders: Reach out to customers with overdue accounts. Address any issues that arise such as invoice disputes.

  • Pursue legal action: For accounts that remain unpaid for an extended period despite your efforts to collect them, consider whether it’s worth pursuing legal action to recover the funds. This should be a last resort, as it can be costly and time-consuming.

  • Negotiate payment plans: Businesses can negotiate payment plans with customers to gradually recover owed amounts.

  • Adjust credit policies: If you notice a pattern of late payments from certain customers or industries, it may be time to review and possibly adjust your credit terms for those groups. Businesses can adjust credit terms to require quicker payments or move to prepayment or cash on delivery (COD) terms.

  • Forecast cash flow: Adjust your financial forecasting based on how much money the report shows should be coming in.

  • Write off bad debt: If the debt is deemed unrecoverable, the business may decide to write off the amount as a bad debt expense.

  • Implement proactive measures: Consider taking proactive measures such as conducting credit checks on new customers, or requiring deposits or partial payments up front for large orders or services.

How to calculate accounts receivable aging

  • Gather invoice data
    Collect all outstanding invoices. Document the invoice date, customer name, and amount due.

  • Determine the aging periods
    Decide on the time frames you want to use for aging the receivables.

  • Categorize each invoice
    Calculate the number of days each invoice has been outstanding. Categorize it into the appropriate aging period.

  • Calculate customer totals
    Organize invoices by customer and aging period. Calculate the total amount owed by each customer for each aging period.

  • Create the report
    Prepare a table or spreadsheet that lists each customer along the vertical axis and the aging categories along the horizontal axis. Fill in the table with the summed amounts for each customer and category. Add a total at the bottom of each column to see the total amount of receivables in each aging category.

Sample calculation

For this sample calculation, imagine a company with three outstanding invoices:

  • Invoice A: $1,000, issued 20 days ago

  • Invoice B: $2,000, issued 40 days ago

  • Invoice C: $3,000, issued 75 days ago

The aging calculation would place Invoice A in the 0–30 days category, Invoice B in the 31–60 days category, and Invoice C in the 61–90 days category. The report would reflect these categorizations and sum the amounts for each category for a total of $1,000 owed in 0–30, $2,000 owed in 31–60, and $3,000 owed in 61–90.

Benefits of accounts receivable aging

  • Improved cash flow management: By staying on top of overdue invoices, businesses can ensure they have the necessary funds for operations and investments.

  • Reduced bad debt: By identifying and acting on overdue accounts promptly, businesses can reduce the likelihood of accounts becoming uncollectible.

  • Customer credit checks: The aging report allows businesses to assess the credit of their customers and adjust their credit terms accordingly.

  • More efficient collections process: Accounts receivable aging reports allow businesses to implement strategic collections processes that prioritize the most overdue accounts.

  • Informed financial planning: The aging report provides a clear picture of expected cash inflows from receivables, informing financial planning.

  • Regulatory compliance and reporting: Accounts receivable aging reports help businesses demonstrate compliance and meet reporting requirements.

  • Better relationship management: Businesses can use accounts receivable aging reports to identify customers who may be facing financial difficulties and communicate with them to find solutions that are mutually beneficial—contributing to a positive customer relationship.

The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accuracy, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.

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