What an AR aging report is.
An accounts receivable aging report lists every unpaid customer invoice grouped by how long it has been overdue. The standard buckets are current (not yet due), 1-30 days overdue, 31-60, 61-90, and 90 plus. The total of all buckets equals the AR balance on the balance sheet. The aging is the diagnostic tool: it tells you which invoices are still likely to be collected and which are slipping into trouble.
The report is dated. AR aging on April 29, 2026 reflects unpaid invoices as of that date, calculated against the original invoice due date. Run the report every Monday and you get a moving picture of which customers are sliding from on-time to late to seriously overdue. Run it once a quarter and the slide has already happened. The frequency of looking is most of the value.
What each bucket really means.
Current (not yet due): this is the healthy zone. Invoices issued within the agreed payment terms. Typical SMB AR has 40-60 percent of total in this bucket. 1-30 days overdue: the customer is slow but not alarming. Collection probability typically 92-96 percent. A polite reminder usually resolves. 31-60 days overdue: warning zone. Collection probability drops to 80-85 percent. Phone calls now, not emails. The customer probably has a cash flow issue or is testing your enforcement.
61-90 days overdue: high risk. Collection probability 50-70 percent. Demand letter, suspend further credit, escalate to the owner if you have not already. 90 plus days: critical. Collection probability 25-50 percent and falling weekly. Write-off candidate. Decide whether to pursue legal action, hand to a collections agency, or write off. The longer the invoice sits in 90 plus, the lower the recovery.
- Current: healthy, no action needed.
- 1-30 overdue: polite email reminder, 92-96 percent collection.
- 31-60 overdue: phone call, 80-85 percent collection.
- 61-90 overdue: demand letter, suspend credit, 50-70 percent.
- 90 plus: legal or write-off, 25-50 percent collection.
The collection probability math.
Industry data (US Atradius, UK Federation of Small Businesses, Pakistan informal sector surveys) consistently shows that collection probability degrades sharply with age. The numbers above are averages; your specific business will vary. Track your own historical recovery rate by bucket. For a wholesale distributor in Houston with USD 1.2 million AR: 600k current, 360k 1-30, 144k 31-60, 60k 61-90, 36k 90 plus. Expected collections: 600 + 336 + 122 + 39 + 12 = USD 1.109 million. Expected loss: USD 91,000.
The USD 91,000 expected loss should be reserved on the balance sheet as Allowance for Doubtful Accounts. Journal entry monthly: DR Bad Debt Expense / CR Allowance for Doubtful Accounts. Adjust the allowance each month based on the new aging. This is what auditors mean by an "allowance method" of bad debt accounting. The alternative (direct write-off when the customer fails) understates AR and overstates current month profitability.
Worked example: a London creative agency.
A 12-person agency in London on April 29, 2026. AR total GBP 184,000. Buckets: current 92,000, 1-30 overdue 48,000, 31-60 overdue 28,000, 61-90 overdue 12,000, 90 plus overdue 4,000. The 61-90 bucket includes one invoice to Client X for GBP 8,400 dated January 28. The 90 plus bucket includes one invoice to Client Y for GBP 4,000 dated December 15. These two invoices are the immediate focus.
The agency owner calls Client X. The client confirms the invoice was received but their accounts payable runs a 90-day cycle. The owner negotiates payment within 7 days with a 2 percent prompt-pay discount. Client Y has not responded to three emails. The owner sends a formal demand letter via solicitor (cost GBP 150) giving 14 days. If no response, the agency writes off the GBP 4,000 and pursues county court judgment. The aging report drove both decisions.
Setting up a dunning workflow.
Dunning is the structured process of reminding customers to pay. A good dunning sequence has four touches. Day 1 after due date: friendly email reminder ("Just a heads up that invoice INV-2034 is now due"). Day 14 after due date: firm email plus phone call ("Your account is now 14 days overdue. Please confirm payment date"). Day 30: formal letter, suspend new orders ("Your account is 30 days overdue. We will pause new orders until cleared"). Day 60: demand letter from solicitor, escalate.
The sequence should run automatically based on AR aging. Nonari fires the day-1 email automatically, prompts the bookkeeper at day 14, generates the formal letter at day 30, and escalates to the owner at day 60. The customer sees a consistent firm process, not a panicked owner suddenly remembering an old invoice. Consistency is what gets paid; sporadic reminders signal the invoice is optional.
When to write off bad debt.
Write off when collection probability drops below the cost of pursuit. For an invoice of USD 800, the cost of a solicitor letter and follow-up phone calls exceeds the recovery probability times recoverable amount. Write off. For an invoice of USD 80,000, even at 25 percent recovery probability the expected value is USD 20,000, well above pursuit cost. Pursue. The dividing line is usually around USD 2,000-5,000 depending on jurisdiction.
Write-off journal entry: DR Allowance for Doubtful Accounts / CR Accounts Receivable. The customer specific receivable is removed; the allowance covers it. If you did not maintain an allowance (rare for established businesses), the entry is DR Bad Debt Expense / CR AR. Document the write-off decision with copies of the dunning attempts, the customer correspondence, and the rationale. Tax authorities may require this to allow the deduction.
How to use AR aging to set credit policy.
The aging report tells you which customers are good credit risks and which are not. A customer who is consistently in the current bucket gets generous terms (net-30, higher credit limit). A customer who slides into 31-60 every month gets tightened (net-15, credit hold above limit, deposit required). A customer who hits 61-90 twice gets cash-on-delivery only or a credit pause until they clear the balance.
Most SMBs do not enforce credit policy because it feels confrontational. The result is that good customers subsidize bad customers via inflated prices to cover bad debt losses. Tighter credit policy on the bottom 10 percent of customers improves cash collection by 15-25 percent without losing the top 90 percent. Nonari can be set to refuse to create a new invoice for any customer over a credit limit or with an overdue balance above a configured threshold.