A business can appear profitable on paper while still struggling to pay its bills.
One reason for this is timing. A sale may have been recorded as income, but the customer may not have paid the invoice yet. At the same time, the business may have supplier invoices, wages, taxes and other costs that need to be paid.
Aged receivables and aged payables reports help business owners understand these outstanding amounts and manage their cash flow more effectively.
What are aged receivables?
Aged receivables show the money owed to a business by its customers.
They may also be described as:
- Trade debtors
- Aged debtors
- Customer balances
- Sales ledger balances
- Debtor reports
When a business raises a sales invoice, the amount normally appears within aged receivables until the customer pays it and the payment is matched against the invoice.
The report does not simply show the total amount owed. It normally separates invoices according to how old they are.
Typical categories include:
- Current: The invoice is not yet due
- 1–30 days: The invoice is up to 30 days overdue
- 31–60 days: The invoice is between 31 and 60 days overdue
- 61–90 days: The invoice is between 61 and 90 days overdue
- 90 days and over: The invoice is more than 90 days overdue
The older an invoice becomes, the greater the risk that it may be disputed, overlooked or never paid.
Why aged receivables matter
An aged receivables report can help identify:
- Customers who have not paid
- Invoices that need chasing
- Customers who regularly pay late
- Potential bad debts
- Disputed invoices
- Errors within the bookkeeping records
- Possible future cash flow problems
It is important to remember that sales do not necessarily equal cash.
A business may have recorded £50,000 of sales, but if £20,000 remains unpaid, only £30,000 may have reached the bank.
That difference can affect the business’s ability to pay suppliers, employees, VAT, PAYE, Corporation Tax, loan repayments and general overheads.
What are aged payables?
Aged payables show the money a business owes to its suppliers.
They may also be described as:
- Trade creditors
- Aged creditors
- Supplier balances
- Purchase ledger balances
- Creditor reports
When a supplier invoice is entered into the accounting records, it normally remains within aged payables until it is paid and the payment is matched against it.
As with aged receivables, the report normally groups outstanding invoices according to their age.
This allows the business to see which invoices are not yet due, which are approaching their payment date and which have become overdue.
Why aged payables matter
An aged payables report can help a business identify:
- Suppliers who need paying
- Overdue supplier invoices
- Upcoming cash commitments
- Duplicate invoices
- Missing credit notes
- Supplier disputes
- Incorrect balances
- Opportunities to plan payments
The report can therefore be used as part of the business’s short-term cash flow planning.
For example, it can help management decide:
- Which invoices should be paid first
- How much cash will be required during the next few weeks
- Whether supplier payment terms are being followed
- Whether a payment arrangement may be needed
- Whether there is sufficient cash available for tax and payroll liabilities
Delaying supplier payments may provide temporary cash flow relief, but repeatedly paying late can damage supplier relationships. It may also result in reduced credit limits, lost discounts or suppliers asking for payment in advance.
The connection between receivables and payables
Aged receivables and aged payables should not be reviewed separately.
The business needs to understand both:
- What it expects to receive from customers
- What it needs to pay to suppliers and other parties
For example, a business may have £30,000 due from customers and £20,000 due to suppliers. On the surface, this may appear manageable.
However, if most of the customer debt is more than 90 days old and the supplier invoices are due next week, the business could still face a cash flow problem.
The timing and quality of the balances are therefore just as important as the totals.
Common problems within aged reports
An aged report is only useful when the bookkeeping records are accurate and up to date.
Common problems include:
- Customer receipts not being matched to invoices
- Supplier payments not being allocated correctly
- Duplicate invoices
- Missing credit notes
- Invoices posted to the wrong customer or supplier
- Personal payments recorded as business transactions
- Old balances that have not been investigated
- Bank reconciliations that are incomplete
- Payments recorded without the related invoice
- Disputed balances remaining on the report indefinitely
For example, a customer may have paid an invoice, but the receipt may have been entered as a general bank transaction rather than matched against the invoice. The bank balance may be correct, but the aged receivables report will still incorrectly show that the customer owes money.
Regular bookkeeping reviews help identify and correct these issues.
What happens when a customer does not pay?
When there is doubt over whether a customer will pay, the outstanding balance should be reviewed.
The business may need to consider:
- Whether the invoice is disputed
- Whether the customer is experiencing financial problems
- Whether further credit should be provided
- Whether a payment plan should be agreed
- Whether formal recovery action is appropriate
- Whether the balance should ultimately be treated as a bad debt
Writing off a bad debt may affect the reported profit. In some circumstances, the business may also be able to claim VAT bad debt relief, subject to the relevant conditions being met.
A debt should not be written off simply because it is old. The circumstances should be reviewed, and the business should retain evidence of the recovery action taken.
Good credit control practices
Effective credit control should begin before an invoice becomes overdue.
Good practices include:
- Agreeing clear payment terms with customers
- Showing the due date clearly on invoices
- Issuing invoices promptly
- Checking that invoices have reached the correct person
- Sending reminders before or shortly after the due date
- Chasing overdue invoices consistently
- Resolving disputes quickly
- Setting appropriate customer credit limits
- Reviewing long-outstanding balances
- Avoiding further credit where previous invoices remain unpaid
Businesses are sometimes reluctant to chase customers because they are concerned about damaging the relationship. However, professional and consistent credit control is a normal part of running a business.
Good supplier payment practices
Businesses should also manage their supplier accounts carefully.
Good practices include:
- Entering supplier invoices promptly
- Checking invoices before approving them
- Matching payments to the correct invoices
- Reviewing supplier statements
- Recording credit notes
- Paying within agreed terms where possible
- Contacting suppliers early if a payment will be delayed
- Investigating old or disputed balances
- Avoiding duplicate payments
- Keeping sufficient cash aside for upcoming commitments
A supplier statement can be particularly useful because it allows the business to compare the supplier’s records with its own accounting system.
How often should aged reports be reviewed?
The appropriate frequency depends on the business, but many businesses should review their reports at least monthly.
A business with a high volume of invoices or tight cash flow may need to review aged receivables weekly.
The review should consider more than the headline total. Attention should be given to:
- The largest customer and supplier balances
- Invoices that have recently become overdue
- Balances more than 60 or 90 days old
- Customers with a history of late payment
- Unallocated receipts or payments
- Negative balances and unusual credit amounts
- Old balances that have not changed
- Supplier invoices due before expected customer receipts arrive
Using aged reports for better decisions
Accurate aged reports can support wider business decisions.
They can help a business decide whether it can:
- Take on additional staff
- Purchase equipment
- Pay dividends
- Repay borrowing
- Increase drawings
- Meet upcoming tax liabilities
- Offer customers longer payment terms
- Negotiate different terms with suppliers
They can also highlight when reported profits are not being converted into cash.
This is particularly important for growing businesses. Growth often requires more working capital because the business may need to pay wages, suppliers and overheads before customers settle their invoices.
The key takeaway
Aged receivables show who owes the business money.
Aged payables show who the business owes money to.
Both reports are essential for understanding cash flow, managing customer and supplier relationships, identifying bookkeeping errors and planning future payments.
A profitable business can still experience financial pressure when customers pay late or outstanding balances are not monitored.
Regularly reviewing aged receivables and aged payables gives the business greater visibility and control. It allows potential problems to be identified early, while there is still time to take action.
