What is an AR Aging Report?

The accounts receivable (AR) aging report is a critical tracking mechanism for cash flow planning. A basic AR aging report features the total owed by client and then a breakdown into aging categories (30-60 days, 60-90 days, etc.) It’s a snapshot of which clients are in good standing and which are delinquent on their bills.

The AR aging report lets you keep your finger on the pulse of your cash flow. Assessing which clients aren’t paying in a timely fashion can alert you to underlying issues. Late payments can signal a client’s financial instability, dissatisfaction with products or services, problematic (or erroneous) invoicing, a relationship disconnect, or other serious problem.

What’s in your report?

When running an AR aging report, no matter what accounting application you use, the categories on a default report are in 30-day segments. A high-level report displays client names, with five columns across the report displaying invoicing by age from invoice date.

Main Categories of an Aging Report

  • Current: Invoices that are due immediately.
  • 0 to 30 days: Invoices that are due within the next 30 days.
  • 31-60 days: Invoices that are 31 to 60 days past their due date.
  • 61- 90 days: Invoices that are 61 to 90 days past their due date.
  • Greater than 90 days: Invoices that are more than 90 days past their due date

High-level AR aging reports show client activity grouped by date. You can also run detailed AR aging reports with specific invoice information that can alert you to an instance of a mispaid invoice versus a habitually tardy client.

Get smarter AR Aging Reports

Depending on your tracking software, you can run customized AR aging reports that offer greater insight into the timing of remittances. These can include parsing by region, salesperson, collector, and amount. Customized reports allow you to identify internal versus external issues in the accounts receivable process.

Why are Aging Reports Important?

AR aging reports are the first step in highlighting potential issues before they become problematic. By tracking AR aging on at least a weekly basis, you can identify concerns before they spin out of control and trigger a cash flow crunch. AR reports are critical to improving receivables performance.

Some insights to be gained from AR aging reports:

  • Collections practices —If one invoice from a client lingers unpaid, it could be that your accounting department misplaced the bill instead of the client’s bookkeeper letting it fall through the cracks. AR reports can help highlight when an issue is internal versus external.
  • Sales training opportunities—If one salesperson has consistently late-paying clients, it may be a matter of emphasizing to the rep the importance of encouraging timely remittance, or identifying if the sales rep is overselling on features or functionality.
  • Credit risk: Older accounts receivable expose the company to insolvency due to the risk that the debtors may be unable to pay the invoice. If some customers are slower payers than others, you may decide to review your billing policy or stop doing business with customers who are chronically late payers. It’s also helpful to compare your credit risk against industry standards, in order to determine if you are taking too much credit risk or if the risk is within the normal parameters for your industry.
  • Across-the-board delinquency—If all your AR sees above-average days delinquent, that can signal a systemic problem. Are you out of step with industry invoice terms? Are your clients dissatisfied?

In some cases, the answer may be as simple as understanding your clients’ accounts payable processes. If they only cut payments once a month, realigning your invoice timeline with theirs can correct the issue and ensure you’re paid on time while respecting their processes.

The potential for misinterpretation

There is some risk for misinterpretation of the data in your reports. It’s helpful to keep in mind that if your payment terms are net 10, 15, 45, or another time period, you should define the timeframes in your application parameters, so your aging reports display delinquency tethered to your credit policies. If your reporting doesn’t align with your credit terms, you’ll have a skewed perception when reviewing AR aging reports. This also impacts when you run the report. Most businesses generate the report before the month ends, which shows fewer receivables -- whereas, in reality, there are more receivables pending payment. Be aware of the timing of when you run your report, and ensure credit terms are accurately reflected, to get the most useful data. 

Who needs to look at the AR Aging Report?

Although certainly a tool for your finance team, the accounts receivable aging report can be used by various external stakeholders. For example:

  • Lenders of the company can use the report to assess the company’s short-term solvency and working capital requirements.
  • Investors (equity and preferred) can use the report to evaluate both the short-term and long-term solvency and quality of the company’s customers.
  • In some cases, even tax authorities use the receivables aging report to learn more about the sales cycle and repayment timeline of the company’s customers. 

This report has the most impact for your accounting team, however company-wide dissemination and discussion should produce better results. All stakeholders, including senior management, sales department heads, and sales reps, should review and understand these reports. Everyone impacted by, or who can affect the success of, accounts receivable collections should have access to this all-important report.

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