Last Updated February 27, 2025
Healthy cash flow is crucial to any business. However, managing funds requires more than simply having money in the bank. You need to take a longer-term view of your business’s finances, including how efficiently it collects on accounts receivable (AR).
Late payments and overdue invoices can disrupt operations, but you can avoid potential cash flow issues with the right tools and strategies. Understanding your accounts receivable aging report makes all the difference. An accounts receivable aging analysis helps you pinpoint late-paying customers, understand potential credit risks, and make more informed financial decisions.
In this guide, we’ll explain what an accounts receivable aging report is, how to read and create one, and actionable strategies for improving collections.
What Is an Accounts Receivable Aging Report?
An accounts receivable aging report keeps tabs on all outstanding invoices. It organizes unpaid invoices by date range, making it easier to identify overdue payments and make a plan for collecting these payments. Most AR aging reports group late payments into 30-day intervals like 0-30 days, 31-60 days, 61-90 days, and 90+ days overdue.
Not only does an accounts receivable aging analysis show the total amount of unpaid invoices, but it also shows the effectiveness of your collection efforts. Unpaid invoices aren’t just an issue with your clients; they also suggest something needs to improve with your accounts receivable process.
It can be difficult to realize that you have late-paying customers, but monitoring aged receivables in accounting can help you run a more sustainable business with healthy finances.
What Do Accounts Receivable Aging Reports Show?
An AR aging report provides a clear snapshot of a company’s outstanding invoices, categorizing them by how long they’ve been overdue. This information helps businesses monitor cash flow and identify delinquent accounts that may require follow-ups.
Ideally, you want to see a high accounts receivable turnover ratio, which indicates that your team efficiently collects credit from customers. By analyzing accounts receivable aging percentages and trends in aged receivables in accounting, you can make informed financial decisions, improve collection strategies, and maintain a healthy revenue cycle.
Information Included on an AR Aging Report
While you’re free to customize the report to suit your needs, most accounts receivable aging reports include:
- Customer information: List the customer’s name to track who has outstanding payments.
- Invoice number and date: It’s important to give each invoice a unique tracking number so you can easily identify which invoices need to be addressed. The date here refers to when your AR team issued the invoice to the customer, which you use to calculate an invoice’s age and category.
- Outstanding balance: This refers to the total amount a customer owes on a single invoice.
- Total receivables per customer: Total receivables tallies a customer’s overdue invoices to show the sum of all outstanding invoices per client.
- Category: This section organizes overdue invoices into time brackets like 31-60 days, etc.
- Accounts receivable aging percentage: Some businesses track accounts receivable aging percentages, which is the proportion of total receivables that fall into each category.
- Credit terms: If your clients negotiate different payment terms, note them here. For example, if a client has payment terms of net 90, their account isn’t considered delinquent until the invoice is in the 91+ day category.
- Cross-aging: Cross-aging accounts receivable helps you decide whether a customer’s total balance is delinquent.
- Collection status: It can be helpful to track the actions taken to collect payment in the status column. Add notes on follow-ups like reminders, calls, or even legal action.
Keep in mind that not all of these categories will be actionable or valuable to your AR team. Exclude data points from your AR aging report template if they aren’t helpful.
Example of an Accounts Receivable Aging Report
An accounts receivable aging analysis can be as simple or complex as needed. Ultimately, your AR aging report template should help your team make educated decisions with as few distractions as possible. Here’s an AR aging report example to show how simple the final report can be:
Why Is an Accounts Receivable Aging Report Important?
An aging analysis of accounts receivable provides a helpful snapshot of your business’s financial health. Creating an accounts receivable aging report is also crucial for other reasons.
Improve Cash Flow
A current accounts receivable aging report helps you track outstanding invoices and anticipate incoming payments, which is essential for improving cash flow. This report tells you when you can expect payments to come through. Plus, analyzing accounts receivable aging percentages will also identify potential cash flow gaps so you can take measures to maintain financial stability before there’s a problem.
Access Credit from Lenders
If you need funding to maintain or grow your business, your lender may want to see an up-to-date AR aging report before issuing credit or loans.
That’s particularly true for receivable-based financing options like invoice factoring. By reviewing an AR aging report example, financial institutions assess your business based not on its internal earnings, but on your aged receivables and customer payment history (you do not need a minimum credit score to qualify, however).
Pinpoint Collections Inefficiencies
Monitoring aging in accounts receivable is a smart way to spot potential inefficiencies in your AR team’s ability to collect payment. This report can help you audit your cash flow and overall AR policies, helping you make more accurate financial projections.
Some AR teams are strapped for time. If this is the case in your business, a current accounts receivable aging report will streamline the collection process by prioritizing the most overdue accounts first. Instead of going after all overdue invoices simultaneously, your team can rely on the report to prioritize follow-ups and improve recovery rates.
If there’s nothing wrong with your AR process, an AR aging report will highlight which customers chronically pay late. Pinpointing late-paying customers allows you to adjust credit policies, implement stricter payment terms, or prioritize collections to minimize bad debt.
Understand Business Success
How is your business doing, really? Ultimately, AR aging reports are just one of many AR metrics for gauging success. Taken in context with other performance metrics, you can better understand whether your business is operating sustainably or if something needs to change. Instead of hoping for cash to come through the door, regularly monitoring your AR aging report will keep you one step ahead of potential financial problems, allowing you to take action before it’s too late.
How to Read an Accounts Receivable Aging Report
Whether you’re auditing cash in anticipation of leaner times or just want to generate a year-end accounting report, an accounts receivable aging report is essential for maintaining financial health. Every AR aging report template differs slightly, but these tips will help you read this report quickly and correctly.
1. Look at Aging Categories
Start by looking at the accounts receivable aging schedule to see which invoices are delinquent. For example, current invoices (0-30 days) were recently issued and aren’t a concern. However, invoices overdue by 91+ days are at high risk of default and might require legal action. Reviewing the categories first gives you an idea of how well your AR processes work for collecting payment. The older your business’s invoices are (which you can see with AR aging percentages), the less efficient your AR processes are.
2. Review Each Customer
An AR aging report breaks down overdue balances by customer and invoice. However, it’s important to look at the whole picture. For example, a customer with multiple overdue accounts is a much higher risk than a customer with just one overdue balance. You may need to adjust your policies or credit terms for customers with multiple overdue invoices so this doesn’t happen again.
3. Calculate Total Overdue Balances
If you’re trying to forecast company finances, look at the total of all overdue balances. This metric will tell you when you can expect payment to come in. Use this information to make better financial decisions, like potentially delaying big purchases because customers are delinquent with payment.
How to Create an Accounts Receivable Aging Report
Creating an accounts receivable aging report is straightforward. Once you decide which metrics matter most to your company, meet with your AR team to create a template. From there, it’s as simple as filling out the accounts receivable aging schedule.
Create this report by:
- Gathering all invoice data
- Sorting invoices by due date and categorizing them accordingly
- Calculating the total amount due in each category
It’s also helpful to create a digitized dashboard for aging accounts receivables that updates this information in real time. Small businesses may not need up-to-the-minute information like this, but it can help them keep a careful eye on their finances.
Tips to Improve (Reduce) the Average Age of Your Receivables
Processing an accounts receivable aging report is simple, but reducing the average age of your receivables is another matter entirely. Ideally, you want customers to pay as quickly as possible, although that doesn’t always happen. Follow these tips to improve the average age of receivables in your AR aging report:
- Offer strict credit policies: It’s generally best to offer the strictest credit terms you think are reasonable for the situation, since many customers appreciate flexibility. However, some will take advantage of lax policies. Using an accounts receivable aging analysis, you can identify high-risk customers and adjust their credit terms accordingly.
- Streamline AR follow-ups: Your AR team should send invoices promptly to speed up the payment cycle. This means sending invoices immediately and having a system in place to follow up with customers.
- Improve cash flow with invoice factoring: If customers aren’t paying and you need cash ASAP, consider factoring your receivables. Factoring allows you to sell outstanding invoices to a third-party financing company like altLINE and receive immediate cash in return. Selling accounts receivable helps businesses improve liquidity, reduce reliance on collections, and maintain a healthier accounts receivable aging process.
- Incentivize early payments: Encouraging customers to pay invoices ahead of schedule can significantly lower accounts receivable aging percentages. Providing incentives, such as early payment discounts, motivates clients to settle their accounts before they’re due.
- Use AR software: The AR process can get complex, especially if you have many clients. Whether you’re making the most with a small team or need help automating the process, AR software does the work for you. An accounts receivable management solution provides helpful features like automated invoicing, dashboards, fee enforcement, and customer communication.
In-Summary: Accounts Receivable Aging Report
Late payments and overdue invoices can disrupt your business, but the right strategies can help you stay ahead of any potential cash flow issues. Regularly run an accounts receivable aging report to see a breakdown of outstanding invoices categorized by how long they’re overdue. Use this data to make more informed decisions, improve collection strategies, and protect your business’s financial future.
If customers regularly pay late and you need funding in the meantime, consider factoring your receivables. You can also encourage customers to pay on time by offering early payment discounts, adjusting credit terms, or managing AR with automation software.
Maintaining a current accounts receivable aging report helps businesses strengthen financial stability, optimize credit policies, and ensure long-term success. Regularly reviewing and acting on accounts receivable aging percentages is key to maintaining a healthy cash flow and minimizing bad debt risks.
Michael McCareins is the Content Marketing Associate at altLINE, where he is dedicated to creating and managing optimal content for readers. Following a brief career in media relations, Michael has discovered a passion for content marketing through developing unique, informative content to help audiences better understand ideas and topics such as invoice factoring and A/R financing.
