Reading Your A/R Aging Report: Which Customers to Call First

An accounts receivable aging report answers one question: who owes you money, and how long have they owed it? Most owners know the total. Fewer use the report to decide what to do on Monday morning. That is what it is for.

This post explains how to read an aging report in a traffic control company and turns it into a call order.

What the buckets mean

An aging report takes every unpaid invoice and sorts the balance into buckets by how far past its due date it is:

• Current: not yet due.
• 1 to 30 days past due.
• 31 to 60 days past due.
• 61 to 90 days past due.
• Over 90 days past due.

Two details trip people up.

The clock starts at the due date, not the invoice date. A Net 30 invoice sent on the 1st is current until the 31st. If your invoices carry no due date at all, an aging report has nothing to measure from, and they will all read as current forever. Set payment terms on every customer so every invoice gets a due date.

The bucket hides the detail. An invoice 31 days past due and one 59 days past due sit in the same bucket, but they are not the same problem. The number of days overdue is the more useful figure. Look at it, not just the column.

Group it by customer

You collect from people, not from invoices. A useful aging report shows each customer's total, how much of it sits in each bucket, how many open invoices they have, and how old the oldest one is.

That grouping changes the work. A general contractor with eleven small invoices can owe more than a customer with one large one, and it is easy to miss when the report is a long list of invoices. And one call should cover everything a customer owes. Calling about invoice 4117 on Tuesday and invoice 4122 on Thursday wastes your time and the customer's.

A call order that works

There is no single right order, but this one is practical for a traffic control office with one person doing collections part of the day.

1. Anyone about to cross into a later bucket. A customer whose oldest invoice is at 55 days is about to become a 60-day customer. A call this week is a reminder. A call next month is a collection.

2. The largest balances past 30 days. Sort by total past due. Often a few customers hold most of the past-due dollars; when that is true, a few calls there move more cash than a dozen calls on small balances.

3. Customers still ordering while over their limit. If a customer is past due and still booking crews or renting devices, you are extending more credit every day. Talk to them before the next job, not after. Our post on credit applications and payment terms covers setting those limits in the first place.

4. Over 90 days. These need a decision, not just another reminder. Is there a dispute? Is the customer in trouble? Is it time for a demand letter, a payment plan, or advice from a lawyer? On public work, your rights against a payment bond can depend on deadlines, which our post on payment bond claims explains.

5. Small balances past 30 days. Handle these in a batch, by email with the invoice and a payment link attached. A phone call for every small invoice rarely pays for itself.

Before you pick up the phone

A collection call goes better when you can answer the customer's first question. Have these ready:

• Was the invoice received? Check whether the email was delivered and opened. "We never got it" is the most common answer, and sometimes it is true.
• Is the work documented? The signed daily ticket for that day, with the customer's signer and time. A disputed invoice is a document problem, and our post on preventing daily ticket disputes covers fixing it at the source.
• Does it reference what they need? Purchase order number, project number, the prime's job number. An invoice the customer cannot match to a project cannot be approved.
• How can they pay right now? A payment link they can pay while you are on the phone beats a promise to mail a check.

Public agency customers run on their own clock

Government customers pay through their own approval process, and many states have prompt payment laws that set when payment is due. Texas is one example. TxDOT's own manual explains that under the state's prompt payment law, payments must be made to vendors within 30 days from the latter of the date the vendor completes its services, the date the agency receives the goods, or the date TxDOT receives the invoice. The same page says a state agency's payment is overdue on the 31st day and interest is calculated automatically.

That is a rule for vendors a state agency pays directly. As a subcontractor to a prime, your payment terms come from your subcontract, and the rules that apply to the prime may differ. The useful habit is the same either way: know which clock applies to each customer, and do not chase a public invoice that is not yet late under its own rules while ignoring a private one that is.

Keep retainage out of the buckets

Retainage on public and large private jobs is held back under the contract until a later milestone. It is not overdue in the normal sense, and leaving it in the aging buckets makes your aging look worse than it is and sends you chasing money that is not yet due. Track it on its own. Our post on retainage and cash flow shows how.

Write down every collection call

Keep a short note of every call and email: date, who you spoke with, what they said, and what happens next. It helps the next call, and it helps if the invoice never gets paid. The IRS says that to show a debt is worthless, "you must establish that you've taken reasonable steps to collect the debt" (IRS Topic 453, Bad debt deduction). Whether and when an unpaid invoice can be written off, and how your accounting method affects that, are questions for your accountant.

How Traffic OS shows your receivables

Traffic OS has an A/R aging report built for this kind of call list.

• Totals by bucket. The top of the report shows the total receivable, the amount over 90 days, and the totals for current, 1 to 30, 31 to 60, 61 to 90 and over 90 days past the due date.
• Grouped by customer. Customers are listed biggest balance first. Each shows its total balance, the number of open invoices and how many days overdue its oldest invoice is. Click a customer to open its invoices, oldest overdue first.
• Days overdue on every invoice, with its due date and bucket. A switch shows the plain list of all open invoices instead.
• Open invoices only. The report counts invoices that have been sent or partly paid and still have a balance. Drafts do not count.
• Due dates from terms. When a customer has payment terms, a new invoice for that customer gets its due date from those terms.
• Credit limits. A customer can carry a credit limit, and the quote and invoice composer warns when a document's total is over that limit.
• Delivered and opened tracking on every emailed invoice, so you know before the call whether they saw it.
• Payment links and the customer portal, so a customer can pay during the call.

The aging report reads as of today and prints to PDF. The customer balances and unpaid invoices reports sit beside it. See the reports on the features page.

A fifteen-minute weekly routine

1. Open the aging report grouped by customer.
2. Mark anyone whose oldest invoice is within a week of the next bucket. Call them first.
3. Call the three largest past-due balances.
4. Check anyone over their limit who has work on the schedule this week.
5. Batch-email the small past-due balances with a payment link.
6. Note every call where the next person can see it.

Receivables rarely go bad in one step. They drift a bucket at a time while everyone is busy with the work. A short call list, worked every week in the same order, is what stops the drift. For the invoicing habits that keep the list short in the first place, see getting paid faster.