How to Age Accounts Receivables

How to Age Accounts Receivables | Accounting Smarts
Charles Hall

Last updated by

Charles Hall


June 10, 2022

Accounts receivable aging is a report that divides a company's accounts receivable into categories by length of time an invoice has been open or unpaid.

Accounts receivable aging is a report that divides a company's accounts receivable into categories by length of time an invoice has been open or unpaid.

The aging report is a good measure of the financial health of a company’s customers. The greater the balance in the older categories the greater the risk of collectability. It can also be a warning sign of flaws in collection practices.

Common aging categories are current, 1-30 days, 31-60 days, 61-90 days and 91 and over days.

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Table of contents

How to calculate the aging of an invoice

To calculate the length of time an invoice has been open is done by counting the number of days between the invoice date and the current date. Based on the number of days calculated, the amount is placed in the column that fits the number.


Assume, The Love Company purchased product on July 1, 2020 totaling $635. Today is October 27, 2020. To calculate the number of days outstanding you would count the days between July 1 and October 27th.

If you look at the accounts receivable aging report displayed below you will find The Love Company is showing a balance of $635 in the “91 and over” category.

The accounts receivable aging is typically presented in the form of a report called the accounts receivable aging report similar to the chart below:


How to understand the accounts receivable aging report

An accounts receivable aging report is pretty straight forward but there are a few items to consider and understand to get the most out of the report.

  1. The title of the report includes a date. The date is critical, as the aging is calculated based on this date. Most accounts receivable aging reports are system generated, so if you put in the wrong date it will calculate the wrong aging. So always check the date first.
  2. The left most column lists the name of the customer.
  3. The aging columns in the middle is the cumulative balance due for the customer listed on the left. A customer may have more than one unpaid invoice. However, most aging reports only show the cumulative balance rather than each individual invoice. To find the individual invoices you would look at the accounts receivable ledger report.
  4. The rightmost column is the total balance owed for the customer listed in the left most column. It is not uncommon for a customer to have unpaid balances in more than one column. For example, Roger & Company has a $2,020 balance in the 1 – 30 days category and a $1,500 balance in the 61 – 90 days category.
  5. Negative balances in the accounts receivable aging report represent, overpayment, credit memos, or errors. Normally you would not expect this in the aging report. However, mistakes do happen, overpayments do happen, and credit memos do happen and the aging report will draw attention to these credits so you can review them. Notice the 31 – 60 days category, it has a negative $433 for Rawlings and Sons, and a negative $12.15 for Rocky Mountain Who.
  6. The TOTAL line at the bottom of the report represents the total amount of unpaid receivables in each category helping you understand the overall mixture of unpaid invoices. The ideal accounts receivable aging would have all balances in the “Current” category as this means you have zero past due accounts. For most companies this is very uncommon. What you are really looking for is the amount that is past due. The longer a receivable ages, the less likely you are to collect. For tips on collecting check out 7 Ways to Improve Accounts Receivable Collection. 

How to use an accounts receivable aging report

Remember that the older an invoice goes unpaid, the less likely you are to collect. So, understanding your customers, and their debts is the first step in successfully collecting.

Understand the aging mix

The first thing you should do when you look at the accounts receivable aging report is to find the category of the greatest debt. Is it current? 1-30 days? Or is the greatest debt in the 90+ category?

There is a rule called the 80/20 rule, which states that 80% of the problem comes from 20% of the customers. This rule applies well to accounts receivable aging. So, by focusing on the category with the greatest debt you will maximize your collecting efforts. Once you know the category of great risk, you can create a targeted plan of collecting.

Communicate with the customer

Much of your efforts will be with the largest balances. However, the aging report also helps you be proactive in collecting all the past due amounts. The largest balances should receive a direct phone call or maybe even mailed collection notice. The smaller balances particularly in the smaller aging categories can receive an email notice, reminding them of their past due balance. Any notice given is good, as it keeps the responsibility with the customer. The best approach is to have a consistent plan so the invoices never make it to the oldest categories.

Its time for a collection agency

Inevitably most companies will have some customers that refuse to pay or no longer have the ability to pay. These accounts find their way to the 90+ category and at some point, have to be dealt with more strictly. There are several steps that could be taken but it is up to the company to decide the cost benefit of stronger action.

  • Collection Agency

There are companies that specialize in the collection of past due accounts. They typically get paid based on a percentage of receivables they collect. They employ stronger tactics to collecting these receivables as their business survives on collection.

  • Small Claims Court

This is a step up from the collection agency and requires more time and money on your part. Depending on the cost involved and the size of the past due amount you will have to determine whether it is cost beneficial to proceed in this direction.

Before you decide to go to court or send something to collections know your state law and be aware of statute of limitations. It also pays to try and understand the situation of your customer. Often customers fail to pay because they find themselves in hardship. Maybe their business has suffered or maybe they have experienced hardship in health or other circumstances. While these types of situations were not caused by you, they do affect you may factor into any decisions made. The course you take will also have consequences on relationships and future business.

How to calculate accounts receivable turnover

Whenever you discuss accounts receivable aging, business analysis ratios help. The accounts receivable turnover ratio will help you understand how many times your receivables are collected in a given period. You may find that your business is slow at collecting in general which might trigger a different response to collection.