Late invoices hold up more than cash. They bite into your runway, tighten working capital, and push you into fast decisions when you want to plan ahead. AR aging shows you exactly which invoices are outstanding and for how long. Thats important, since over half of unpaid invoices are overdue, and a third take more than 90 days to collect.
Tracking AR aging helps you know where your cash is stuck and which customers need your attention. Let's dive into what AR aging means, how to calculate it, which methods actually work, and how to track it in Runway so you can see receivables in real time.
Understanding AR aging
AR aging is a simple, yet surprisingly powerful, cash management tool. You sort unpaid invoices by how long they've been sitting. Instead of one big total, you put them in time buckets, usually in 30-day chunks like 0-30 days, 31-60 days, 61-90 days, and over 90 days past due.
This view gives you more than just an AR balance. You see payment patterns, spot late-paying customers, and get a sense of what cash might hit your account soon. Finance teams use AR aging to forecast cash flow, set reserves for bad debt, focus collection efforts, and keep a close eye on customer credit risk.
The formula for average AR aging days looks like this:
AR aging days = (Average Accounts Receivable × 360 days) / Credit Sales
This tells you the average number of days it takes customers to pay. Most teams go further and create aging schedules that break down receivables across those time buckets. That gives you a sharper view of collections health.
Methodologies for AR aging
There isn't just one way to structure an AR aging report. Pick an approach based on your model, customers, and how you want to use the info. Here are the methods most finance teams rely on:
Standard aging bucket method
This classic method sorts invoices by how old they are. It's straightforward, actionable, and quick to set up.
- Current: invoices due now or not past due
- 1-30 days overdue
- 31-60 days overdue
- 61-90 days overdue
- Over 90 days overdue (sometimes you can split into 90-120 and 120+ days)
Each bucket shows dollar amounts and percent of total AR. Quick to see where aging is piling up and where to focus collections. You can also attach expected uncollectible percentages to each bucket, like 1% for current invoices, 5% for 31-60 days, 20% for 61-90 days, and 50% for over 90 days. That helps you calculate reserves for bad debt.
Weighted average aging
This method weighs each invoice by its size when calculating your portfolio's average age. Larger invoices have more impact, so the number reflects your overall AR health.
If you want to track one clear metric over time, or compare segments, this one works well.
Customer-level aging
This approach zeroes in on each customer. You see who has invoices in the 60+ or 90+ day buckets and spot patterns fast. For example, maybe a customer always pays 45 days late, but always pays, or maybe they're signaling financial strain.
With customer-level aging, you can focus collections, adjust credit, or consider writing off balances when needed.
Segment-based analysis
Slice AR aging by customer type, contract size, region, payment method, or any dimension that counts for your business. You might look at enterprise customers on net-60 terms versus SMBs on net-30, or compare aging across sales teams.
This shows you if aging issues cluster in specific segments, so you can target collection efforts and refine credit policies.
Rolling vintage analysis
This advanced method tracks groups of invoices issued in the same period, following how they age over time. Watch all January invoices for 90 days, then compare to February, March, and beyond.
Vintage analysis gives you a pulse on payment trends. It's handy for spotting improvements, downturns, or seasonality in collections. It works great for companies with changing mixes of customers or variable sales cycles.
Key components and considerations
Get your AR aging report right by dialing in these core elements.
Aging start date
Pick a starting point: invoice date, due date, or delivery date. Stay consistent. Mixing these up leads to confusion and questions about your numbers.
Most companies track aging from the due date since that's when payment's expected. Aging from the invoice date can make current invoices look late before they're even due.
Bucket selection
Line up your buckets with payment terms and collection policies. If most customers are on net-30, then 30-day buckets keep things simple. If you use net-60 and net-90 terms, consider separate structures for those segments.
Granularity level
- Invoice-level: for prioritizing specific collections
- Customer-level: for credit and relationship reviews
- Portfolio-level: for an exec snapshot
Partial payments
Decide how you'll track invoices with partial payments. Some teams age only the unpaid part. Others age the full invoice amount until it's cleared. Either way, document your policy and keep it consistent.
Payment plans and extended terms
Carve these out separately from standard receivables. Otherwise, aging buckets can look off, and collection health appears worse than it really is.
Disputed invoices
Always tag disputed invoices with status, amount, and owner. If you let them sit in standard aging, you cloud your true risk exposure.
Credit memos and adjustments
Make sure AR aging accounts for pending credits and adjustments. Credits reduce the amount owed but aren't cash yet. Treating credits as cash throws off your AR balance.
Unbilled revenue
Track unbilled receivables separately. These represent revenue earned but not yet invoiced, and they carry different risk from billed AR.
Diverse payment terms
If your terms vary by customer type or region, consider multiple frameworks. A net-90 enterprise account in the 60-day bucket is a different scenario from a net-30 SMB in the same bucket.
Root cause analysis
Separate invoices aging due to customer cash flow from those stuck because of billing errors or internal bottlenecks. Each problem needs its own fix, and lumping them together hides the root issue.
Links to working capital and other financial metrics
AR aging connects to your biggest financial moves. Here's how:
Cash flow forecasting
Use AR aging to forecast cash flow with more confidence. Apply past collection rates to each bucket. If 80% of invoices in the 1-30 day bucket usually come in on time, use that. As invoices get older, collection rates drop, so bake that into your plan.
Days sales outstanding (DSO)
AR aging feeds right into your DSO. Lower DSO means faster cash conversion. DSO is the big picture. AR aging breaks it down, showing if slow payers are spiking your average or if the whole group is trending late.
Bad debt provisioning
Assign reserve percentages to each bucket based on write-off history. This beats using a flat percent, helping you stay on target when setting aside cash for losses.
Working capital management
When you tighten AR aging, you shorten your cash cycle. That frees up capital for growth, payroll, or other top priorities.
Collections prioritization
AR aging keeps your collections team focused. Invoices in the 60+ or 90+ day buckets need attention first. Older invoices become much harder to collect.
Customer credit risk assessment
You can fine-tune credit terms for each customer when you see their aging pattern. Offer more credit to reliable payers, and add guardrails for risky ones.
Revenue quality evaluation
If you see chronic aging issues, it could signal you're selling to customers who can't pay, or recording revenue too early.
Covenant compliance and audit preparation
Lenders and investors often ask for AR aging reports. Auditors use your schedule to double-check balances and bad debt reserves.
Liquidity planning
Plan your liquidity with confidence. AR aging shows when cash will likely arrive and how much might get written off.
Benchmarks and rules of thumb
Benchmarks depend on your industry, customers, and typical terms. But here’s a quick guide:
- Healthy B2B companies keep 70-85% of receivables current.
- Past-due receivables over 20-25% of total AR deserve scrutiny.
- SaaS teams usually stay at 60-70% in the 0-30 day bucket, 31-60 days below 25%, 61-90 days under 10%, and 90+ days less than 5%.
- Invoices 90+ days overdue often collect at just 70-80%, dropping to 50-60% after 120 days. Some research shows only an 18% chance for 90+ days.
- Most set bad debt reserves at 1-3% of total AR, with higher rates for older buckets such as 1% for current, 5% for 31-60 days, 20% for 61-90 days, 50% for 91+ days.
- SaaS teams with annual prepaid contracts often see very little AR aging compared to services firms. Enterprise accounts with net-60 or net-90 will naturally stack up more in those buckets.
- Teams review detailed AR aging weekly, summaries monthly. Collection escalation usually starts at 15-30 days past due, with legal steps at 90-120+ days.
Common pitfalls to avoid
Keep your AR aging clean and reliable by sidestepping these common traps:
- Using invoice date instead of due date: Makes invoices look late when they're not. This creates noise for your collections team.
- Not adjusting buckets to payment terms: Net-30 logic on net-60 customers muddies the view. Someone at day 45 on net-60 is still current.
- Failing to exclude disputed invoices: Including these makes your metrics look rough when the cash is just pending a fix. Always tag and track separately.
- Treating all customers equally: Segment by size, reliability, and patterns. A large enterprise at 60 days may deserve a different response than a newer, smaller customer.
- Ignoring partial payments: Only age the unpaid balance, not the original invoice, or you'll overstate the problem.
- Not reconciling with the general ledger: Differences between AR aging and your GL erode trust and lead to mistakes. Reconcile often.
- Using inconsistent cutoff dates: Don’t let system mismatches disrupt monthly comparisons.
- Failing to age unbilled revenue: If you don’t track this, you’re understating true exposure.
- Overlooking large customer concentrations: One big account can skew results. Segment to get the real picture.
- Not connecting aging to root causes: Always dig deeper; billing errors, process issues, or customer distress may require different solutions.
- Ignoring seasonal patterns: Account for peaks and troughs that repeat every year. Don’t overreact to the usual cycles.
- Not updating credit policies based on aging: Adjust limits and payment terms using what the numbers tell you. Don’t set it and forget it.
- Using static bad debt reserves: Update reserves based on aging buckets and real write-offs, not rules-of-thumb.
- Not tracking trends over time: Monitor changes month to month. You'll spot issues before they hurt cash flow.
- Overlooking structural aging: Some aging is part of how your industry or customers operate. Learn what's normal for you before sounding the alarm.
How to track receivables aging in Runway
Tracking AR aging in Runway is simple and lets you keep everything connected with your other metrics. Here's how to do it right:
Step 1: Connect your accounting system
Start by hooking up your accounting system to Runway. It works with most modern accounting systems such as QuickBooks Online, Xero, NetSuite, and others. Your balance sheet and income data sync automatically. If you use QuickBooks Online, you can bring in invoice-level data, so you'll see all outstanding receivables and details right inside Runway.
Step 2: Set up your balance sheet and income statement databases
Add prebuilt templates, or build from scratch. Make sure your balance sheet has AR and your income statement tracks revenue. If your accounting system names fields differently, use Runway's databases basics guide.
Step 3: Identify your AR and revenue fields
In your balance sheet, find the period-end balances, "Ending Balance" for QuickBooks, "BS Amount" in NetSuite. Make sure you can filter by account so you isolate AR easily.
On your income statement, look for "Income Statement Amount", "Net IS Amount", or similar to track monthly revenue. If needed, use Runway's lookups to bring different GL accounts together under one revenue category.
Step 4: Build your AR aging buckets
Set up a new database or add columns to your AR database to calculate aging. Reference your invoice-level data, or use historical collections if you don't have detail. Runway lets you reference full database columns and filter in formulas. You can use database-column references to pull invoice dates, due dates, and payments, then calculate days outstanding for each invoice.
Common buckets you might use are:
- Current (0 days past due)
- 1-30 days past due
- 31-60 days past due
- 61-90 days past due
- 90+ days past due
Conditional logic in Runway's formula editor lets you assign each invoice to a bucket automatically. Learn more in the formulas basics guide.
Step 5: Calculate weighted averages and summary metrics
With buckets set, track summary metrics like weighted average aging days, AR totals by bucket, and percent in each bucket. Functions like sum() and avg() aggregate quickly, and filters let you segment by type, region, and more.
Want to track aging with DSO or average collection period? Build these in the same or linked databases and reference together for full visibility.
Step 6: Segment by customer or other dimensions
See aging by customer, region, or subsidiary by making sure balance sheet and income databases use the same segment dimension, or link with a lookup table. Use "This Segment" so filters always match. Check out Runway's guide for dynamic formulas using This Segment and dimensions basics.
Step 7: Build a page for real-time monitoring
Create a page in Runway for your AR aging schedule. Add blocks to visualize buckets as tables or charts. Show other cash metrics like operating cash flow, runway, and DSO. Run scenario comparisons to model what happens if you shrink the 60+ day bucket or speed up collections.
Pages update automatically as your data syncs, so you never have to upload or calculate again.
Step 8: Set up actuals vs forecast logic
You can build both actuals and forecast logic into each driver. For AR aging, use past collection rates for actuals. Adjust assumptions in forecasts to try out new collection strategies. If you leave actuals blank, Runway falls back to your forecast for every period.
Step 9: Validate your results
Drill into AR and revenue filters and groupings to make sure everything matches. Show the column as a time series for each month, so you can spot real trends and confirm the aging distribution looks right.
Step 10: Automate and monitor
Runway will update your AR aging formulas every month, automatically. No more manual tweaks. Review your AR aging page weekly or monthly and share with collections, sales, and leaders, so everyone stays in the loop.
Start monitoring your AR aging
AR aging isn't just a spreadsheet. It's a direct look at your cash health, customer habits, and collections strategy. Track it consistently and act on what you see to shorten your cash cycle, cut bad debt, and free more capital for growth.
Runway gives you the tools to build, monitor, and share AR aging schedules with your other financial metrics. Segment by customer, model collection scenarios, and actively watch how tweaks affect your runway, all in one modern workspace.
Ready to see it in action? Schedule a demo and get more control over your receivables and financial planning.