cashflow
Invoice Aging
Tracking how long invoices have been outstanding - 0-30, 30-60, 60-90, 90+ days.
Definition
Invoice aging is the practice of grouping unpaid invoices by how long they've been outstanding - typically 0-30 days, 30-60, 60-90, and 90+. The aging report tells you immediately how much cash is at risk and where to focus collections. Healthy: 80%+ of receivables current (under 30 days). Warning: significant balance in 60-90 days. Critical: anything in 90+. Aging discipline is fundamental cash flow hygiene - businesses that don't age their AR have outstanding balances they don't even know about.
Reading an aging report correctly
A standard US AR aging report has columns for current (not yet due), 1 to 30 days past due, 31 to 60 days past due, 61 to 90 days past due, and 91 plus days past due. Each row is a customer with totals at the bottom. Healthy distribution for US service businesses on net 30 terms: 70 to 80 percent current, 15 to 20 percent 1 to 30 days past due, less than 5 percent 31 to 60, less than 2 percent 61 to 90, less than 1 percent 91 plus. Concentrated bad debt: one customer with 50K in 90 plus bucket matters far more than 50K spread across 50 customers in 1 to 30. The aging report combined with customer concentration analysis is the highest-leverage 10 minutes of US small business AR management.
Bad debt allowance and write-off rules
US accrual basis businesses estimate uncollectible AR as 'allowance for doubtful accounts' - a contra-asset reducing AR on the balance sheet. Two methods. Percentage of receivables: estimate based on aging buckets (e.g., 1 percent of current, 5 percent of 31 to 60, 25 percent of 61 to 90, 75 percent of 91 plus). Specific identification: review each large overdue invoice and estimate individual collectibility. When an invoice becomes clearly uncollectible (typically after collections exhaustion, customer bankruptcy, or 180 to 365 days past due with no movement), write it off: debit bad debt expense, credit AR. For US tax purposes, the IRS allows direct write-off for bad debts on cash basis or accrual basis - the timing depends on accounting method. Document collection efforts; the IRS may challenge bad debt deductions without evidence of attempted collection.
Aging as early warning system
Rising aging is the earliest leading indicator of business stress, often visible months before cash flow problems. Three patterns to watch. Pattern one: aging shifting right (more dollars moving from current to 31 to 60, from 31 to 60 to 61 to 90). Causes: weakening collections process, customer financial distress, or your invoicing process slowing down. Pattern two: specific customer concentration in older buckets. A single customer with 25 percent of AR in 60 plus signals customer distress; act before they file bankruptcy. Pattern three: bucket totals rising in absolute dollars even when distribution looks healthy. Often masks acquisition of large slower-paying customers (enterprise, government, healthcare). The aging report should be reviewed monthly minimum, weekly during stress, with personal escalation on every customer in 60 plus bucket.
Tools and automation for AR aging
QuickBooks Online, Xero, FreshBooks, and Zoho Books generate aging reports natively. For US businesses with significant AR, specialized AR automation tools add value: Chaser, Upflow, Versapay, Quadient AR, Esker AR. Features that matter: automated dunning sequences (emails at 7, 14, 30 days past due), customer payment portals, online payment integration (ACH plus credit card), aging dashboards with drill-down, and integration to QuickBooks / Xero / NetSuite. Typical pricing: 50 to 500 dollars per month depending on AR volume. Payback usually within 6 months in collected receivables that would otherwise have aged into uncollectible territory. The biggest mistake: relying on email reminders alone past 30 days; automated emails get ignored in volume, but personal calls and AR portals with friction-removed payment options collect.
FAQ
What aging buckets should I use?
Standard US buckets work for most businesses: current (not yet due), 1 to 30 days past due, 31 to 60, 61 to 90, 91 plus. For businesses with longer payment terms (net 45, net 60), shift the bucket boundaries to reflect actual due dates. Some US businesses with predominantly enterprise customers add a 121 to 180 bucket and 181 plus bucket to separate slow-paying-but-likely-collectible from probably-uncollectible. The buckets themselves matter less than consistent monthly review and escalation rules tied to each bucket.
How often should I run the aging report?
Monthly minimum; weekly during cash flow stress or rapid growth. Make it part of the financial close: include aging review alongside P&L and balance sheet review each month. During weekly cash flow forecasting, refresh aging to inform the next 13 weeks of expected collections. US businesses that review aging quarterly or less frequently typically discover collection problems months too late. The 20 minutes per month is among the highest-leverage 20 minutes in financial management.
When should I send an invoice to collections?
Typically at 90 to 120 days past due if internal collection efforts have failed. Path: own collection through 60 days, escalate to demand letter from owner or attorney at 60 to 90 days, send to collections agency at 90 to 120 days. US collections agencies charge 25 to 50 percent of collected amount (contingency basis), so the math: better to collect 50 percent of 5000 than collect 0 percent of 5000 by ignoring it. For amounts over 5000, consider attorney demand letters first - the heavier formality often produces payment without litigation. Above 25000, evaluate small claims court or full litigation; below 5000, write-off is usually cheaper than pursuit.
What is the difference between 'aged AR' and 'past due AR'?
Aged AR is the total of all outstanding receivables organized by age, including current (not yet due). Past due AR is the subset that has exceeded its due date - excludes current. Past due AR is the more actionable metric for collection focus. A US service business with 100K total aged AR, of which 80K is current, has only 20K of past due AR requiring collection attention. Reports should clearly label both numbers; mixing them produces confused prioritization.
How do I prevent invoices from aging in the first place?
Five preventive practices. One, invoice immediately on milestone completion or service delivery - delayed invoicing adds days directly to aging. Two, require deposits or upfront payment for new customers (eliminates aging risk on entry). Three, automate dunning at 7, 14, 30 days past due before manual escalation. Four, accept multiple payment methods (ACH, credit card, electronic check) to reduce friction. Five, train customers from invoice one - the first late payment that gets a same-day call sets the pattern. Compounded, these typically cut past due AR by 50 to 70 percent within 6 months for US small businesses adopting them systematically.
In your business
- →Run an aging report monthly - every invoice in 60+ days needs a personal call
- →Write off anything in 180+ days that hasn't moved - it's not collectible
- →Track aging trends - rising 60+ day balance is an early warning of bigger collection problems