Reading the AR aging report and acting on it

Your income statement can show a strong quarter while your bank balance quietly drains. The gap between those two facts almost always lives in one place: money you have earned and invoiced but have not been paid. The accounts-receivable aging report is where that money sits, sorted by how long it has been waiting. Read it well and it warns you about a collections problem weeks before the shortfall lands on payroll.

Accounts receivable — AR — is the total of invoices you have sent that customers have not yet paid. The aging report takes that pile and breaks it apart by how overdue each invoice is, so you can see not just how much you are owed, but how stale it is getting.

What the report actually shows

Every open invoice lands in one of five columns, measured against its due date. Current means not yet due — you sent it, the clock is running, but the customer is still inside the terms. The other four columns are all past due: 1 to 30 days, 31 to 60, 61 to 90, and 90 plus. An invoice with net-30 terms sent 50 days ago and still unpaid sits in the 31-to-60 bucket, because it went past due 20 days back.

Read left to right, the report tells a story about the health of your collections. A book weighted toward Current and the 1-to-30 column is healthy. Weight sliding rightward, into the 60- and 90-day columns, is the single clearest early warning you have that cash is about to get tight.

Why the older buckets are the alarm

Fresh receivables almost always get paid. The odds fall fast the longer an invoice ages. An invoice 90 days past due is not a slow payment; it is a signal — a disputed bill, a customer in trouble, or an account that has quietly decided not to pay. Money that reaches the 90-plus column often never arrives at all, which is why watching the drift into that column matters more than watching the total.

Two patterns deserve your attention every time. The first is weight shifting right week over week — the same dollars marching from 1-to-30 into 31-to-60 into 61-to-90. That drift means your reminders are not landing. The second is customer concentration: one large customer sitting in the older columns. A single $30,000 invoice at 75 days past due is a bigger threat than thirty $1,000 invoices spread across the young buckets, because your exposure is stacked on one relationship that may be failing.

What each bucket should trigger

The report is only useful if reading it drives an action. Each column should map to a specific, escalating response, and everyone who touches collections should know the rules.

• Current: nothing beyond a polite reminder a few days before the due date. Making it easy to pay on time is the cheapest collection there is.
• 1 to 30 days: a friendly written nudge — a short email restating the amount, the invoice number, and a payment link.
• 31 to 60 days: pick up the phone. Email is easy to ignore; a call gets you a reason and a promised date, or surfaces a dispute you can fix.
• 61 to 90 days: put the account on credit hold — stop new work or shipments until the balance clears — and get a written payment commitment.
• 90 plus days: escalate. Involve the founder, send a formal demand, consider a collection agency, and reserve the amount as doubtful so your books stop treating it as good money.

A worked example

Say your total AR is $180,000 across your customer base, and the aging breaks down like this: $110,000 Current, $34,000 in 1-to-30, $18,000 in 31-to-60, $9,000 in 61-to-90, and $9,000 in the 90-plus column. At a glance the book looks fine — most of the money is Current. But $70,000, nearly 40% of what you are owed, is past due, and $18,000 of that has aged past 60 days. Now add one fact: a single customer accounts for $22,000 of the 31-to-90 range. That is where your real risk sits, and that is the account the founder should be calling this week.

You act on it in order. The $34,000 in 1-to-30 gets email reminders today. The $18,000 in 31-to-60 gets phone calls, starting with the big customer. The $9,000 in 61-to-90 goes on credit hold. The oldest $9,000 gets escalated and, for anything genuinely uncollectible, reserved against. One report, five clear actions.

Tie it to DSO and run it weekly

The aging report has a companion number: days sales outstanding, or DSO — the average number of days it takes you to collect an invoice. You calculate it by dividing total AR by your average daily credit sales. If you sell $2,160,000 a year, that is $6,000 a day, and $180,000 of AR works out to a DSO of 30 days. On net-30 terms, that is roughly on time. If DSO climbs to 45, you have quietly tied up an extra $90,000 in unpaid invoices — real cash, out of your account, funding your customers.

The aging report shows you where the problem is; DSO tells you whether it is getting better or worse over time. Both are only useful if you look often. Run the aging report weekly, not monthly. A collections problem caught at 40 days is a phone call; the same problem caught at 100 days is a write-off. The report does not collect the money for you, but it tells you exactly who to chase, in what order, before the cash you already earned slips away.