How to Prepare an Accounts Receivable Aging Schedule

Managing customer payments is a core activity for any business that directly impacts financial stability. Tracking what is owed, by whom, and for how long requires an organized approach to provide clarity on incoming cash flow. This allows a company to make informed decisions about its credit and collection strategies.

Key Information for an Accounts Receivable Aging Schedule

An accounts receivable aging schedule is a report that categorizes a company’s outstanding invoices by how long they have been unpaid. Its function is to provide a clear view of a company’s receivables and to help manage cash flow by identifying overdue payments. The schedule is also used for collection activities and for assessing the effectiveness of credit policies.

To construct an accurate aging schedule, specific information is required for every outstanding sale. The invoice number provides a unique identifier, and the invoice date is the starting point for calculating age. The required information includes:

• The customer’s name
• The unique invoice number
• The invoice date
• The total amount of the invoice
• Any payments already received to reflect the current outstanding balance

How to Create an Aging Schedule

The process of creating an accounts receivable aging schedule is systematic and is most commonly handled using spreadsheet software or integrated accounting systems. The first step is to set up a table with columns for the key data points for each invoice. This forms the basic structure of your report, listing every transaction that has not yet been fully paid.

Next, create additional columns that represent the aging “buckets” or time intervals. These standardized categories classify the age of each invoice. The most common buckets are “Current” (0-30 days), “1-30 Days Past Due,” “31-60 Days Past Due,” “61-90 Days Past Due,” and “Over 90 Days Past Due.” These categories provide a snapshot of how long payments have been outstanding.

With the structure in place, calculate the age of each individual invoice by determining the number of days between the invoice date and the current date. Based on this calculation, place the outstanding amount for each invoice into the corresponding aging bucket. For example, an invoice that is 45 days past its due date would have its balance placed in the “31-60 Days Past Due” column.

To complete the schedule, calculate the total outstanding amount for each customer by adding up all of their individual invoice balances. You will also calculate the total for each aging bucket by summing all the invoice amounts within that column. These totals provide an overview of receivables, showing which customers owe the most and the overall timeliness of collections.

Interpreting the Aging Schedule for Financial Health

Once the schedule is complete, it becomes an analytical tool for making financial decisions. Its primary use is to prioritize collection efforts. By looking at the “61-90 Days” and “Over 90 Days” columns, a business can identify which customers are furthest behind on their payments, as these delinquent accounts require urgent attention.

The schedule is also used in estimating the allowance for doubtful accounts for financial reporting. The probability that an invoice will go unpaid increases the older it gets. Companies apply a progressively higher reserve percentage to each aging bucket. For instance, a small percentage might be applied to the 31-60 day bucket, while a much larger percentage, sometimes up to 50-100%, is applied to balances over 90 days.

This analysis impacts the company’s understanding of its financial health and credit policies. A schedule showing a large proportion of receivables in the older buckets may signal that credit terms are too lenient or the collection process is ineffective. This allows management to take corrective action, such as tightening credit standards or implementing a more aggressive follow-up procedure.