how accounts receivable aging works
accounts receivable aging as a management tool can indicate that certain customers are becoming credit risks it can be used to help determine whether the company should keep doing business with customers who are chronically late payers accounts receivable aging has columns that are typically broken into date ranges of 30 days each and shows the total receivables that are currently due as well as those that are past due for each 30 day time period 1accounts 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 used to estimate the total amount to be written off the primary useful feature is the aggregation of receivables based on the length of time the invoice has been past due accounts that are more than six months old are unlikely to be collected except through collections or a court judgment companies apply a fixed percentage of default to each date range invoices that have been past due for longer periods of time are given a higher percentage due to increasing default risk and decreasing collectibility the sum of the products from each outstanding date range provides an estimate regarding the total of uncollectible receivables 2the irs allows companies to write off aged receivables but only if the company has given up on collecting the debt 3the aged receivables report is a table that 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 include 30 day windows of time and the rows represent the receivables of each customer here s an example of an accounts receivable aging report 1benefits of accounts receivable agingthe findings from accounts receivable aging reports may be improved in various ways first accounts receivable are derivations of the extension of credit if a company experiences difficulty collecting accounts as evidenced by the accounts receivable aging report problem customers may be required to do business on a cash only basis therefore the aging report is helpful in laying out credit and selling practices accounts receivable aging reports are also required for writing off bad debts tracking delinquent accounts allows the business to estimate the number of accounts that they will not be able to collect it also helps to identify potential credit risks and cash flow issues companies will use the information on an accounts receivable aging report to create collection letters to send to customers with overdue balances accounts receivable aging reports may be mailed to customers along with the month end statement or a collection letter that provides a detailed account of outstanding items therefore an accounts receivable aging report may be utilized by internal as well as external individuals 