Why use this calculator
Accounts receivable aging analysis is essential for managing cash flow and credit risk. As invoices age, the probability of collection decreases significantly. Invoices over 90 days old have a 25-50% chance of becoming uncollectible. By regularly analyzing your AR aging, you can identify problem accounts early, adjust credit policies, and maintain healthy cash flow. This calculator also estimates bad debt provisions to help with financial planning.
How to use it
Enter the dollar amounts of your outstanding receivables in each aging bucket: current (0-30 days), 31-60 days, 61-90 days, 91-120 days, and over 120 days. The calculator computes the weighted average age, estimates bad debt risk using standard allowance percentages, and shows the proportion of your AR that is overdue.
The formula
Weighted Average Age = Sum(Bucket Amount x Midpoint Days) / Total AR. Bad Debt Estimate uses tiered risk percentages: 1% for current, 5% for 31-60 days, 10% for 61-90 days, 25% for 91-120 days, and 50% for over 120 days. These are standard allowance rates used in accounting.
Worked examples
Small business with $50K current, $20K at 31-60 days, $10K at 61-90 days, $5K at 91-120 days, and $3K over 120 days
Total AR of $88,000 with weighted average age of 36 days and estimated bad debt risk of $4,250
Company with $100K current, $50K at 31-60 days, $30K at 61-90 days, $15K at 91-120 days, and $10K over 120 days
Total AR of $205,000 with higher bad debt exposure of $12,250 due to more aged receivables
When people use it
- Monthly cash flow forecasting based on expected collections
- Setting bad debt allowance reserves for financial statements
- Identifying customers who consistently pay late
- Evaluating the effectiveness of your collections process
Tips
- Aim to keep at least 70-80% of your AR in the current bucket (0-30 days)
- Implement automated payment reminders at 7, 14, and 30 days past due to reduce aging
- Consider offering early payment discounts (e.g., 2/10 net 30) to accelerate collections
- Review your credit approval process if your over-90-day bucket consistently exceeds 5% of total AR
Questions people ask
- What is a healthy AR aging distribution?
- A healthy distribution has 70-80% in current (0-30 days), 10-15% in 31-60 days, 5-8% in 61-90 days, and less than 5% over 90 days. If your aging skews heavily toward older buckets, it indicates collection problems or overly lenient credit terms.
- How are bad debt allowance percentages determined?
- The percentages used (1%, 5%, 10%, 25%, 50%) are industry-standard estimates based on historical collection data. Your actual rates may differ based on industry, customer quality, and economic conditions. Review your own write-off history to calibrate these percentages for your business.
- What is Days Sales Outstanding (DSO)?
- DSO measures the average number of days to collect payment after a sale. It is calculated as (Total AR / Total Credit Sales) x Number of Days. A lower DSO indicates faster collection. Most businesses aim for a DSO within 30-45 days, though this varies by industry.