How to read an aged receivables report

business.gov.au describes accounts receivable as the record of short-term amounts customers still need to pay. An aged receivables report takes that record at a chosen date and breaks each customer's balance into age bands, so a single total becomes a picture of how old the money is.

A typical layout has one row per customer and these columns:

• Current, or not yet due: invoices still inside their payment terms.
• A run of overdue bands, each covering a span of time past the due date.
• A final band for everything older than the last span.
• Total: the customer's whole unpaid balance at the report date.

Most reports let you open a customer's row to see the invoices behind it. That detail is where the reading turns into action, because each amount you chase is a particular invoice with its own date and reference.

Two settings change what the report says, so confirm them first.

• The report date. Payments that arrived after it are not reflected, so a customer who paid yesterday can still look overdue on a report dated last month.
• What the bands count from. Ageing by due date shows how late each invoice is. Ageing by invoice date shows how long since you billed, which makes a customer on longer terms look slower than one on short terms even when both pay on time.

Payment terms decide the due dates. business.gov.au gives 7, 14, 21 or 31 days as examples of credit terms between businesses, so customers on different terms reach the overdue columns at different points. If an invoice was entered with the wrong terms, its age on the report will be wrong too.

The report also depends on how your books are kept. business.gov.au explains that cash accounting does not show money owed to you, while accrual accounting does. Under cash accounting the report comes from your invoicing records rather than from a receivables account, so make sure every invoice issued is in that list.

Each row suggests questions to check in the invoice detail. Customer A has the largest amount not yet due and nothing overdue. Customer B has similar amounts in the current band and the next two, suggesting a possible pattern of unpaid older invoices. Customer C's whole balance is in the oldest band; open the detail to see which invoices make it up. Customer D has a small odd balance. Customer E has a credit balance that needs checking before deciding whether a refund or correction is due.

• One large amount in the oldest band with newer invoices paid: often a dispute or a missing document. Find out what the customer is waiting for before sending another reminder.
• Amounts spread evenly across several bands: the customer is falling behind as a habit. Talk about the terms or the account, not one invoice.
• A small, odd amount sitting for months: usually a short payment, a fee the customer deducted or a credit note that was never applied. Check the invoice and the payment before chasing it.
• A negative balance: an overpayment, a payment entered twice or a credit note issued after the invoice was paid. Correct duplicate entries first. Refund or apply only a genuine customer credit, after confirming the amount and the customer's instructions.
• A large share of the total owed by one customer: if that customer pays late, your cash flow feels it straight away.

business.gov.au lists customers who often pay late, leaving the business short of cash for its own costs, as a sign of a cash flow problem. The report is usually the first place that pattern shows.

One report is a snapshot. Keep the column totals from each month end side by side and watch where the money moves.

The current column shrinks a little each month while every overdue column grows. Customers are taking longer to pay, and more of what the business is owed is getting harder to collect.

Chasing an amount the customer has already paid damages the relationship. Before you contact anyone:

1. Reconcile the bank account up to the report date, then check receipts and credits after that date before contacting a customer, so you do not chase an invoice that has since been settled.
2. Match any payment sitting unallocated on a customer's account to the invoice it was for.
3. Apply credit notes to the invoices they relate to.
4. Mark disputed invoices with a note of what is in dispute.
5. If your books record receivables, check that the report total agrees with the receivables balance at the same date.

Work from the oldest band towards the newest, and from the largest amounts down. For each overdue invoice, business.gov.au suggests first checking what your contract says about payment, then contacting the customer with a friendly reminder, and agreeing a new date or a payment schedule if needed. A letter of demand comes later, if reminders don't work. Record each contact against the invoice so the next person knows where things stand.

Use the report to review credit as well. business.gov.au suggests setting limits on how much credit each customer gets, and a customer who keeps appearing in the older bands may need a lower limit or payment up front.

At the end of the financial year, business.gov.au suggests reviewing who owes you money, and it counts lists of debtors among the year-end records to keep. A copy of the aged receivables report at 30 June is a convenient record of that review.