Reading an aged debt report

An aged debt report lists everyone who owes the business money, and splits each balance by how old it is. For a credit controller it is the day’s to-do list. For a financier it is the collateral. Both read the same page, and both need to read it well.

The shape of the report

Each row is a debtor. The columns are age bands, usually by month: current (not yet due, or invoiced this month), one month, two months, three months and older. The last column is the debtor’s total. Here is a short example from a fictional client.

Debtor	Current	1 month	2 months	3 months +	Balance
Brampton Retail plc	12,400	3,200	0	0	15,600
Calder Foods Ltd	8,150	6,900	4,300	2,750	22,100
Dunmore Builders Ltd	0	0	0	9,480	9,480
Eastgate Hotels Ltd	5,600	0	(1,250)	0	4,350
Total	26,150	10,100	3,050	12,230	51,530

Amounts are in pounds. A figure in brackets is a credit.

First, check the report itself

Before reading any row, check two things.

Does the total agree with the sales ledger? The report’s total should match the sales ledger control account in the accounts. If it doesn’t, something is missing from the report or the ledger, and every figure below it is in doubt.

How is it aged? Reports can age by invoice date or by due date. Thirty-day terms aged by invoice date put everything in “1 month” as soon as it falls due; aged by due date, the same invoice is still “current”. Know which before deciding what is overdue. Some packages label columns as “periods” rather than months; check what a period means in the package you’re reading.

Then, six things to act on

1. The balance that never moves. Dunmore Builders owes £9,480, all of it more than three months old, with nothing newer. A debtor that has stopped buying and stopped paying is either in dispute or in difficulty. Find out which today.

2. The debtor getting slower. Calder Foods has money in every band. That spread is the pattern of a debtor paying later each month. Compare with last month’s report: if more of Calder’s balance has moved right, call before it moves again.

3. The credit balance. Eastgate Hotels shows a £1,250 credit in the two-month band. It is usually a payment not yet matched to its invoice, or a credit note. Either way it needs allocating. Left alone, it hides how much Eastgate really owes, and makes the old bands look smaller than they are.

4. The concentration. Calder Foods is £22,100 of a £51,530 ledger, about 43%. When one debtor is that large a share, its slowing payments matter more than anyone else’s. Financiers usually set a concentration limit for this reason; know your client’s.

5. The current column. A large current balance is normally good news, but check it against the client’s usual monthly sales. Current balances well above normal can mean a big new contract, or invoices raised before the work is done.

6. Old small items. Small balances in the oldest band are easy to ignore and add up quickly. Often they are short payments, disputed lines or pricing differences. Each needs either a credit note or a phone call; leaving them makes the ledger look older and worth less.

Read across each row for the debtor’s story, and down each column for the ledger’s.

Turning the report into a plan

Sort what you found into three piles:

• Call today: debtors with large overdue balances, slowing payers and anything that looks disputed.
• Query with the client: credit balances, unexplained old items and anything that suggests the report is wrong.
• Watch: debtors that are fine now but large enough to matter if they slow.

Then compare with the last report. One report is a snapshot; two show movement, and movement is where most problems first appear.

Why it matters to a financier

In invoice finance, the aged debt report is not just a collection tool. It decides how much the client can borrow. Old debt, disputed debt and credit balances are usually excluded or limited, and concentration above a set level may be too. A credit controller who reads the report well protects the client’s cash and the financier’s security at the same time.

Effective Credit Control opens with Reading an Aged Debt Report and Prioritising Your Ledger, using a fictional client’s reports, and returns to the subject in Credit Notes, Contras and Dilution and Spotting Warning Signs on the Ledger.