An aging is a report that lists unpaid customer invoices and unused credit memos by date ranges. The aging report is the primary tool used by collections personnel to determine which invoices are overdue for payment. Given its use as a collection tool, the report may be configured to also contain contact information for each customer. The report is also used by management, to determine the effectiveness of the credit and collection functions. A typical aging report lists invoices in 30-day “buckets,” where the columns contain the following information:
- The left-most column contains all invoices that are 30 days old or less
- The next column contains invoices that are 31-60 days old
- The next column contains invoices that are 61-90 days old
- The final column contains all older invoices
- If the report is generated by an accounting software system (which is usually the case), then you can usually reconfigure the report for different date ranges. For example, if payment terms are net 15 days, then the date range in the left-most column should only be for the first 15 days. This drops 16-day old invoices into the second column, which highlights that they are now overdue for payment.
The report primarily contains invoices, but it may also contain credit memos that have not been used by customers, or which have not yet been matched against an unpaid invoice.
The aging report is also used as a tool for estimating potential bad debts, which are then used to revise the allowance for doubtful accounts. The usual method for doing so is to derive the historical percentage of invoice dollar amounts in each date range that usually become a bad debt, and apply these percentages to the column totals in the most recent aging report.