Loading the player...

What is 'Accounts Receivable Aging'

Accounts receivable aging is a periodic report that categorizes a company's accounts receivable according to the length of time an invoice has been outstanding. It is used as a gauge to determine the financial health of a company's customers. If an accounts receivable aging demonstrates that a company's receivables are being collected much slower than normal, this is a warning sign that business may be slowing down or that the company is taking greater credit risk in its sales practices.

BREAKING DOWN 'Accounts Receivable Aging'

As a management tool, accounts receivable aging may indicate that certain customers are not good credit risks, and may reveal whether the company should keep doing business with customers that are chronically late payers.

Accounts receivable aging is typically broken into date ranges of 30 days. The report typically reports total receivables that are currently due, as well as receivables that are past due.

Aging of Accounts Receivable Table

A table depicting accounts receivable aging provides details of specific receivables based on age. The specific receivables are aggregated at the bottom of the table to display the total receivables of a company, based on the number of days the invoice is past due. The typical column headers of an accounts receivable aging table include the customer name, total receivables of that customer, and various date ranges. Each row represents the total receivables of a single customer.

Allowance for Doubtful Accounts

Accounts receivable aging is useful in determining the allowance for doubtful accounts. When estimating the amount of bad debt to report on a company’s financial statements, the accounts receivable aging report is useful to estimate the total amount to be written off. The primary useful feature is the aggregation of receivables based on the length the invoice has been past due. A company applies a fixed rate of default to each date range. Invoices that have been outstanding for longer periods of time are given a higher default rate due to the higher likelihood of default. The sum of the products from each outstanding date range provides an estimate regarding the amount of uncollectable receivables.

Benefits and Improving Accounts Receivable Aging

The findings from accounts receivable aging reports may be improved in various ways. First, account receivables are derivations from the extension of credit. If a company experiences difficulty collecting accounts, as evidenced by the accounts receivable aging report, specific customers may be extended business on a cash-only basis. Therefore, the aging report is useful in the determination of business practices. Also, accounts receivable aging reports mailed to customers along with the month-end statement provides a detailed account of outstanding items. Therefore, an accounts receivable aging report may be utilized by internal as well as external individuals.

RELATED TERMS
  1. Receivables

    An asset designation applicable to all debts, unsettled transactions ...
  2. Accounts Receivable Financing

    Accounts receivable financing is a type of asset-financing arrangement ...
  3. Invoice Financing

    Invoice financing is a way for businesses to borrow money against ...
  4. Do-Over Option

    The Do-Over Option allows Social Security recipients to re-file ...
  5. Bad Debt Expense

    An entry found on a business's income statement that represents ...
  6. Issue Age Policy

    Issue Age Policy refers to an insurance policy whose rate is ...
Related Articles
  1. Investing

    Accounts Receivable

    Accounts Receivable (A/R) is an accounting term used to refer to the money that is owed to a company by its customers.
  2. Retirement

    How Having a Job Affects Social Security Benefits

    Social Security benefits are important for retirees' finances, but a part-time job can complicate matters if certain benchmarks aren't reached.
  3. Financial Advisor

    Is Delaying Social Security Until 70 a Good Idea?

    Soon to be retirees are often told it's best to wait until age 70 to collect Social Security. Here's why this is not always the best advice.
  4. Retirement

    Near or over 65? Use these retirement planning tips

    Find out how to save smarter after 65.
  5. Retirement

    Should the Retirement Age Be Increased to 70?

    The general consensus is that Social Security faces a crisis of solvency. How to address it is far less clear-cut.
  6. Retirement

    Retiring Early: How Long Should You Wait?

    Maximize your Social Security benefits by choosing when you retire.
  7. Retirement

    The Case for Collecting Social Security Early

    While it may seem counterintuitive, sometimes it makes sense to claim Social Security early.
  8. Retirement

    Common Questions About Social Security

    Find answers to the 10 Social Security questions that most people ask, from how to apply for benefits to how secure the system is.
RELATED FAQS
  1. How long are accounts receivable allowed to be outstanding?

    Learn about accounts receivable, including how long they typically remain outstanding, and how their payment or lack of payment ... Read Answer >>
  2. How should investors interpret accounts receivable information on a company's balance ...

    Analyze accounts receivable information on a company's balance sheet carefully. Receivables offer confidence of future cash ... Read Answer >>
Hot Definitions
  1. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  2. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  3. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  4. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  5. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  6. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
Trading Center