Aging is a method used by accountants and investors to evaluate and identify any irregularities within a company's accounts receivables. Aging is achieved by sorting and inspecting the accounts according to their length outstanding. By aging a company's accounts receivables, a person can get a better view of a company's bad debt and financial health.


An accounts receivable (AR) aging report lists unpaid customer invoices and credit memos by date ranges to determine which invoices are overdue. A typical report lists invoices in 30-day groups, such as 30 days old, 31-60 days old and 61-90 days old. The aging report is sorted by customer name and itemizes each invoice by number or date.

Importance of Aging Report

Management uses the aging report in determining the effectiveness of the company’s credit and collections functions and for estimating potential bad debts. Management revises the allowance for doubtful accounts and determines the historical percentage of invoice dollar amounts per time period that often become bad debt, then applies the percentage to the most recent aging report. Management knows which customers need sending to collections, which need targeting with follow-up invoices and whether the company is collecting receivables too slowly and taking on too much credit risk. If money flows in too slowly, the company’s bills are not paid on time, possibly leading to insolvency.

Example of Aging Report

Company A typically has 1% bad debts on items in the 30-day period, 5% bad debts in the 31 to 60-day period and 15% bad debts in the 61+ day period. The most recent aging report has $500,000 in the 30-day period, $200,000 in the 31 to 60-day period and $50,000 in the 61+ day period. Based on the calculation ($500,000 x 1%) + ($200,000 x 5%) + ($50,000 x 15%), the company has an allowance for doubtful accounts of $22,500.

Issues with Aging Report

Management may extend particularly long credit terms to specific companies or invoices, which may appear extremely overdue on the aging report when they are not. Since many companies bill at month end and run the aging report days later, outstanding accounts from a month prior show up. Even though payments for some invoices are on the way, receivables falsely appear in a bad state. Running the report prior to month-end billing includes fewer accounts receivable and shows little cash coming in, when in reality much cash is owed. The company’s credit terms must match the time periods on the report for an accurate representation of the company’s financial health. For example, credit terms of 10 days showing up in time periods of 30 days make invoices appear current when they are not. Unapplied credits on the report need cleaning up by finding which invoices they are applied against and reducing the amount of overdue receivables on the aging report.

  1. Invoice

    A commercial document that itemizes a transaction between a buyer ...
  2. Invoice Financing

    Invoice financing is a way for businesses to borrow money against ...
  3. Aging Schedule

    An aging schedule classifies assets and liabilities by date (or ...
  4. Accounts Receivable Financing

    A type of asset-financing arrangement in which a company uses ...
  5. Normal Retirement Age (NRA)

    The normal retirement age (NRA) is the age at which people can ...
  6. Dependency Ratio

    A measure showing the number of dependents (aged 0-14 and over ...
Related Articles
  1. Retirement

    The Impact Of Your Starting Age On Social Security

    Retiring at 62 sounds nice, but it could affect the amount of social security you receive.
  2. Tech

    The Best 5 Online Accounting Systems For Small Business

    Running a small business can be difficult, but thanks to these online accounting services, taking care of payroll doesn't have to be.
  3. 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.
  4. 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.
  5. Financial Advisor

    Will Raising the Retirement Age Save Social Security?

    Social Security is the federal government’s biggest expenditure. Here's why raising the age of retirement may not be a bad idea to keep it afloat.
  6. Retirement

    The Case for Collecting Social Security Early

    While it may seem counterintuitive, sometimes it makes sense to claim Social Security early.
  7. 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.
  8. Investing

    5 Ways Bad Credit Screws Up Your Life

    When your credit score slumps, many other things in your life can also start to slide downward. How to recognize the situation and start dealing with it.
  9. 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.
  1. How are debit notes to help collect on a debt?

    Learn what a debit note is and how it's associated with a debit memo request. Understand how a debit note works to help a ... Read Answer >>
  2. When am I eligible to receive Social Security benefits?

    Understand when you are eligible to begin collecting Social Security retirement benefits and how retiring at different ages ... Read Answer >>
Hot Definitions
  1. Liquidity

    Liquidity is the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's ...
  2. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  3. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  4. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  5. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  6. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
Trading Center