Why use this calculator
Profitable businesses run out of cash because customers pay late, and the aged receivables report is where that shows up first. A sale booked but not collected pays nobody's wages, and the longer an invoice sits the less likely it is to be paid at all.
By the time money is short in the bank account, the warning signs were visible in the ageing buckets weeks earlier. This calculator turns the report into the numbers a lender, accountant or owner actually acts on: how much of the ledger is realistically collectible, what allowance for bad debts is prudent, how many days of sales are tied up with customers, and whether the share over 90 days has crossed the level where credit terms and collections need to change now.
How to use it
- Run the aged receivables or aged debtors report in your accounting software, such as Xero, QuickBooks or MYOB, as at today.
- Enter the current bucket as invoices not yet past 30 days.
- Enter the 31 to 60 day bucket, the 61 to 90 day bucket and the 91 to 120 day bucket from the matching columns of the same report.
- Enter everything older than 120 days in the final field, combining columns if your report splits them further.
- Enter average monthly credit sales as the total invoiced on account over the last three months divided by three, taken from your sales or revenue report.
What each result means
- Total Accounts Receivable
- Everything customers owe you right now. It is an asset on the balance sheet but only becomes cash when it is collected.
- Expected Collectible AR
- Total receivables less the estimated bad debts. Use this, not the total, when forecasting cash inflows over the next few months.
- AR to Collect for a 45-Day DSO
- How much of the ledger you would need to collect, with credit sales unchanged, for days sales outstanding to fall to 45 days. Above that level customers are paying more slowly than 30-day terms allow.
- Cash Freed per 10 Days off DSO
- The cash released for every ten days you cut from the average time customers take to pay, at your current monthly credit sales. It is a one-off release that stays in the bank while collections keep that pace.
- Estimated Bad Debt Allowance
- The provision for invoices unlikely to be paid, based on how old each one is. It is the figure accountants book as a doubtful debts allowance.
- Bad Debt as % of AR
- The allowance as a share of the ledger. Under 3% is typical of a well-managed ledger; above 6% suggests credit control problems.
- Weighted Average Age
- The average age of each dollar owed, weighted by amount. Compare it with your payment terms: well above them means customers ignore your terms.
- Days Sales Outstanding (DSO)
- How many days of sales are tied up with customers. Rising DSO with steady sales is the earliest sign of a coming cash squeeze.
- Current AR %
- The share of the ledger still within terms. A healthy ledger keeps 70% to 80% or more in the current bucket.
- Total Overdue Amount
- Receivables already past 30 days. This is the pool your collections effort should work through, oldest and largest first.
- Overdue %
- The share of receivables past 30 days. If it is growing month on month, the cause is usually credit terms or follow-up, not a single customer.
- Over 90 Days %
- The share of receivables more than 90 days old, the most at risk of never being paid. Above 5% calls for action on specific accounts.
The formula
Total AR = sum of the five buckets
Weighted average age = sum of (bucket amount x bucket midpoint) / total AR, using midpoints of 15, 45, 75, 105 and 150 days
Bad debt allowance = sum of (bucket amount x loss rate)
Expected collectible
AR = total AR minus the allowance
DSO = total AR / (monthly credit sales x 12) x 365
Overdue = total minus the current bucket
Over 90 days
% = (91-120 bucket + over 120 bucket) / total AR
How this number is used in practice
The ageing report predicts cash trouble weeks before the bank balance does. When sales are steady but DSO creeps from 38 to 50 days, roughly twelve extra days of sales are sitting with customers, which for a business invoicing $60,000 a month is about $24,000 of cash that has quietly disappeared from the bank.
Owners often read that as a slow month and cut spending, when the real fix is to call the three biggest overdue accounts. Review the report weekly, sorted by amount within each bucket, and act on the oldest large balances first.
The loss rates here are typical provision rates used by small businesses and their accountants, not a legal standard. Under IFRS 9 and US GAAP expected credit loss rules, larger businesses must base their allowance on their own history adjusted for current conditions, and a provision matrix like this one is the accepted simple method.
For tax, a bad debt is generally only deductible when it is actually written off after reasonable collection efforts, not when it is provided for, so the accounting allowance and the tax deduction happen at different times.
Worked examples
$50,000 current, $20,000 at 31-60, $10,000 at 61-90, $5,000 at 91-120, $3,000 over 120, and $60,000 monthly credit sales
Total AR $88,000, bad debt allowance $5,250, weighted age 38.4 days and DSO of 44.6 days
$100,000 current, $50,000 at 31-60, $30,000 at 61-90, $15,000 at 91-120, $10,000 over 120, and $90,000 monthly sales
Total AR $205,000, allowance $15,250, DSO of 69.3 days and 12.20% over 90 days
A tight ledger: $80,000 current, $12,000 at 31-60, $3,000 at 61-90, nothing older, and $85,000 monthly sales
Total AR $95,000, allowance $1,700, DSO of 34.0 days with 84.21% current
When people use it
- Weekly credit control review to decide which accounts to chase
- Setting the doubtful debts allowance for monthly or year-end accounts
- Forecasting cash inflows for the next quarter
- Showing a lender or invoice finance provider the quality of the ledger
- Spotting customers whose payment habits are getting worse
Tips
- Invoice the day the work is done. Every day of delay adds a day to DSO before the customer has even seen the bill.
- Automate reminders a few days before the due date as well as after it. Most late payment is disorganisation, not refusal.
- Call, do not email, anything over 60 days. A phone call gets a payment date; an email gets ignored.
- Put new customers on shorter terms or a deposit until they have a payment record.
- Stop supplying accounts that pass 90 days until they agree a payment plan, or the balance keeps growing.
- Offer card or direct debit payment on every invoice. Removing friction speeds up payment more than discounts do.
What it assumes, and where it stops being accurate
- Loss rates of 1%, 5%, 10%, 25% and 50% are generic small-business estimates. Your own write-off history is a better basis once you have a year or more of data.
- Each bucket is assumed to sit at its midpoint age; the over 120 day bucket is treated as 150 days old.
- DSO uses a simple average of the last three months of credit sales. Seasonal businesses should compare with the same period last year.
- Cash sales are excluded from the DSO denominator. Including them understates how long credit customers take to pay.
- Disputed invoices, credit notes and unapplied payments are assumed to have been cleared from the report first.
Terms used on this page
- Aged receivables report
- A list of unpaid customer invoices grouped by how many days they have been outstanding.
- Bad debt allowance
- An estimate of receivables that will not be collected, booked as a provision against the ledger.
- Days sales outstanding
- The average number of days it takes to collect payment after a credit sale.
- Provision matrix
- A table of loss rates by ageing bucket used to estimate expected credit losses.
Questions people ask
- What is a healthy AR ageing distribution?
- Roughly 70% to 80% in the current bucket, 10% to 15% at 31 to 60 days, 5% to 8% at 61 to 90 days and under 5% over 90 days. A ledger that skews toward the older buckets points to loose credit terms, slow invoicing or weak follow-up.
- How are the bad debt percentages chosen?
- They are common provision matrix rates reflecting that the chance of collection falls as invoices age. They are a starting point. Once you have a year or two of history, work out what share of each bucket you actually wrote off and use those rates instead, adjusted for current economic conditions.
- What is days sales outstanding?
- DSO is the average number of days it takes to collect a sale made on credit, calculated as receivables divided by annual credit sales times 365. On 30-day terms a DSO of 35 to 45 days is normal. A rising DSO with steady sales means cash is being tied up with customers.
- When can I claim a bad debt as a tax deduction?
- In most tax systems, including the US and Australia, a bad debt is deductible only once it is genuinely bad and written off, and only if the income was previously included in your assessable income. Accrual basis businesses usually qualify; cash basis businesses generally do not, because the income was never taxed.
- How can I speed up collections?
- Invoice immediately, state clear terms, accept card and direct debit, and send reminders before and after the due date. Call larger overdue accounts personally. Early payment discounts such as 2% for payment within 10 days work but are expensive, equivalent to an annualised rate of over 30%.
Use this with
Accounts Receivable Aging Calculator answers one part of the question. These pick up where it stops: Cash Flow Forecast Calculator, Startup Burn Rate Calculator, Profit Margin Calculator and Business Loan Calculator.
Where these figures come from
This calculation is jurisdiction-neutral arithmetic. No country-specific rules are applied.
- IRS: Topic no. 453, Bad debt deduction. US rules on when a business bad debt is deductible
- IFRS Foundation: IFRS 9 Financial Instruments. Expected credit loss model and provision matrix approach
- U.S. Small Business Administration: Manage your finances. Cash flow and receivables management guidance
Accounts Receivable Aging Calculator produces an estimate for general information. It is not financial, tax, medical, legal or engineering advice. read the full disclaimer. Spotted a wrong number? Report it and it gets fixed. The form picks up this calculator and the inputs you used.