Accounting and bookkeeping
Aging report
An aging report is an accounting document that categorises a company's accounts receivable or payable based on the length of time an invoice has been outstanding.
What is Aging report?
An aging report provides a snapshot of your outstanding invoices, grouping them by how long they have been unpaid. When you run this report for your accounts receivable, it lists every customer who owes you money. The report separates these balances into time buckets, typically current, 1 to 30 days overdue, 31 to 60 days overdue, 61 to 90 days overdue, and over 90 days overdue. You can also generate an aging report for accounts payable to track what you owe your suppliers. By reviewing this summary regularly, you identify which clients are slow to pay and require immediate follow-up. It is a fundamental tool for managing cash flow, allowing you to recognise potential bad debts early and maintain a clear view of your working capital position.
How Aging report works
The process begins when you issue an invoice to a customer and record it in your ledger. Each invoice carries a specific due date based on your agreed payment terms. As time passes, your accounting system tracks the number of days between the due date and the current date. When you generate the aging report, the system pulls all unpaid invoices and sorts them by customer. It then allocates each outstanding amount into a specific time column based on how many days past due it is. Finally, the report calculates a total for each time bracket and a grand total of all outstanding receivables. This structured format gives you an immediate overview of which accounts require urgent collection efforts.
- Issue an invoice with a clear due date to your customer.
- The accounting software logs the open invoice in your accounts receivable ledger.
- The system calculates the days elapsed since the original payment due date.
- Unpaid balances are sorted into columns like current or 30 days overdue.
- The report totals the amounts in each time bracket for your review.
Worked example
Gulf Trading LLC generates an accounts receivable aging report on 31 October. The report shows a total outstanding balance of $10,000. Customer A owes $4,000, which is not yet due, so it appears in the Current column. Customer B owes $3,500 from an invoice that was due on 15 October. Since it is 16 days late, this $3,500 sits in the 1 to 30 days column. Customer C owes $2,500 from an invoice due on 10 August. Being 82 days late, this $2,500 falls into the 61 to 90 days column. The total matches the $10,000 ledger balance ($4,000 + $3,500 + $2,500).
Why it matters for your business
Monitoring your aging report is critical for business survival because profitable sales mean nothing if cash never arrives in your bank account. If you ignore overdue invoices, you risk running out of cash to pay your own suppliers and employees. A growing balance in the older time brackets warns you that a customer might be facing financial trouble, increasing your risk of bad debt. By catching late payments early, you can pause further credit sales to delinquent clients. Paper & Pen helps you track this easily, as its Sales and Invoicing module is free forever and automatically monitors unpaid balances.
Questions
Common questions
What is the difference between an accounts receivable and accounts payable aging report?
How often should a small business review its aging report?
Related terms
- Accounts receivable Accounts receivable represents the total amount of money owed to a business by its customers for goods or services that have been delivered but not yet paid for.
- Accounts payable Accounts payable is the total amount of short-term debt your business owes to suppliers and vendors for goods or services that you have received but have not yet paid for.
- Bad debt Bad debt is a monetary amount owed to a business that is no longer recoverable because the customer is unable or unwilling to pay their outstanding invoice.
- Dunning Dunning is the systematic process of communicating with customers to ensure the collection of accounts receivable, typically involving a series of increasingly urgent payment reminders for overdue invoices.
- Days sales outstanding Days sales outstanding is a financial metric that measures the average number of days it takes a business to collect payment from its customers after a credit sale has been made.
- Accrual accounting Accrual accounting is a financial method where you record revenue when a sale occurs and expenses when you receive goods or services, regardless of when the actual cash changes hands.