Reading an A/R aging report

An A/R aging lists every customer that owes the business money and splits each balance by how old it is. For a collector, it’s the day’s to-do list. For a factor or ABL lender, it’s the collateral. Both read the same page, and both need to read it well.

The shape of the report

Each row is a customer. The columns are aging buckets, usually 30 days wide: current (0–30 days), 31–60, 61–90 and over 90. The last column is the customer’s total. Here’s a short example from a fictional client.

Customer	Current	31–60	61–90	Over 90	Balance
Brampton Supply Co.	12,400	3,200	0	0	15,600
Calder Foods Inc.	8,150	6,900	4,300	2,750	22,100
Dunmore Builders LLC	0	0	0	9,480	9,480
Eastgate Hotels LLC	5,600	0	(1,250)	0	4,350
Total	26,150	10,100	3,050	12,230	51,530

Amounts are in dollars. A figure in parentheses is a credit.

First, check the report itself

Before reading any row, check two things.

Does the total tie to the general ledger? The aging total should match accounts receivable on the client’s balance sheet. If it doesn’t, something is missing from the aging or the ledger, and every number below is in doubt.

How is it aged? Reports can age by invoice date or by due date. Net 30 terms aged by invoice date move an invoice to 31–60 the day it’s due; aged by due date, the same invoice is still current. Know which before deciding what’s past due, and know which basis your loan agreement uses for eligibility.

Then, six things to act on

1. The balance that never moves. Dunmore Builders owes $9,480, all over 90 days, with nothing newer. A customer that has stopped buying and stopped paying is either in dispute or in trouble. Find out which today.

2. The customer getting slower. Calder Foods has money in every bucket. That spread is the pattern of a customer paying later each month. Compare with last month’s aging: if more of Calder’s balance has rolled to the right, call before it rolls again.

3. The credit in prior. Eastgate Hotels shows a $1,250 credit in the 61–90 bucket. It’s usually unapplied cash or an unapplied credit memo. Either way, it needs applying. Left alone, it understates what Eastgate really owes and makes the older buckets look smaller than they are.

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

5. The current bucket. A large current balance is usually good news, but compare it with the client’s normal monthly sales. Current balances well above normal can mean a big new contract, or invoices billed before the goods ship.

6. Small old items. Small balances over 90 days are easy to ignore and add up fast. Often they’re short pays, disputed lines or pricing differences. Each needs a credit memo or a phone call; leaving them makes the aging look older and the collateral worth less.

Read across each row for the customer’s story, and down each column for the portfolio’s.

Turning the report into a plan

Sort what you found into three groups:

• Call today: customers with large past-due balances, slowing payers and anything that looks disputed.
• Raise with the client: credits in prior, unexplained old items and anything that suggests the aging is wrong.
• Watch: customers that are fine now but large enough to matter if they slow down.

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

A word on unapplied cash

Some agings show unapplied cash as a separate line at the bottom rather than against a customer. Either way, it reduces the real total. A large or growing unapplied balance usually means remittances aren’t being worked, and it can hide both disputes and short pays. Ask for it to be applied before you rely on the aging for anything.

Why it matters to a lender

In factoring and asset-based lending, the aging isn’t just a collection tool. It drives the borrowing base. Receivables over 90 days, disputed items and credits are usually ineligible, and many agreements apply cross-aging, making a customer’s whole balance ineligible once enough of it is past a set age. Concentration over a set level may be excluded too. A collector who reads the aging well protects the client’s cash and the lender’s collateral at the same time.

Effective Credit and Collections opens with Reading an A/R Aging Report, using a fictional client’s reports, and comes back to the subject in Credit Memos, Offsets and Dilution.