Accounting glossary
Ageing report
Receivables and payables ageing
An ageing report lists what each customer owes you, or what you owe each vendor, split by how long it has been due, usually not due, 1 to 30 days, 31 to 60, 61 to 90 and over 90 days. It shows at a glance whom to follow up first and how much money is stuck.
Why it matters to your business
Profit on paper does not pay salaries or suppliers. An ageing report turns one large figure, the total outstanding, into a list you can act on: who, how much and how late. It also warns you before you supply more goods to a customer who is already well past the credit period.
How it works
- Each unpaid invoice is placed in a column by the number of days since its due date, or since its date. Part payments reduce the invoice they are set against.
- Receipts not yet set against any invoice are shown as “on account”, so the net figure for each customer equals the ledger balance.
- The same report for vendors, the payables ageing, shows which bills you must pay first.
- Totals by column show how your accounts receivable are spread, and feed measures such as DSO.
- Read it with each customer’s credit limit and credit period beside it.
An example
A hardware distributor in Indore has ₹18 lakh outstanding. The ageing report shows ₹9 lakh not due, ₹4 lakh at 1 to 30 days, ₹2 lakh at 31 to 60 days and ₹3 lakh over 90 days. Almost all of the ₹3 lakh is owed by two customers. The owner stops further credit to those two, calls them the same day, and lets the automatic reminders handle the rest.
Common mistakes
- Looking only at the total outstanding.
- Leaving receipts unallocated, so paid invoices still look overdue.
- Giving more credit to a customer already in the oldest column.
- Running the report only at year end.
Questions about Ageing report
How do I read an ageing report?
Start from the right. The oldest column, over 90 days, is the money most at risk. Follow up those customers first, then work back towards the amounts that have only just fallen due.
Is ageing counted from the invoice date or the due date?
Either, and the report should say which. Counting from the due date shows how late each customer is against the credit period you agreed. Counting from the invoice date shows how long your money has been out.
How often should I look at it?
Every week for collections, and at each month end with your accountant. A weekly look catches a slow payer while the amount is still small.
What is a good ageing position?
Most of your outstanding in the not due and 1 to 30 days columns. If the 61 to 90 and over 90 columns keep growing, your credit terms or your follow-up need attention.
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