How to Create an AR Aging Report for Accounts Receivable

Cash flow is king. If you don’t know where your money’s stuck, you’re in trouble. That’s where an Accounts Receivable (AR) Aging Report comes in. Especially in India, where payment terms can be wild—sometimes you’re waiting 30 days, sometimes 90 days, maybe even 120 if you’re dealing with big corporations or government contracts. Keeping track of who owes you and for how long is critical to survival.

In this guide, I’ll walk you through how to create an AR Aging Report, step by step, with a focus on the Indian business context. Let’s break it down.

Step 1: Know Why You Need an AR Aging Report

First off, let’s get real. Why even bother?

An AR Aging Report categorizes all the unpaid invoices you’re sitting on by how long they’ve been overdue. Think of it as a time-bomb list for your cash flow. It breaks down your receivables into buckets like 0-30 days, 31-60 days, 61-90 days, and the dangerous zone, 90+ days.

In India, especially with longer credit periods, customers may take their sweet time paying you. If you don’t stay on top of it, your business will suffer. This report helps you:

·         Spot which customers are delaying payments.

·         Chase overdue bills before they become bad debts.

·         Predict when your stuck cash might come back.

·         Stay on top of cash flow issues before they blow up.

Step 2: Gather All Your Data First

Before you start, you need the right data. No data? No report. Here’s what you need to collect:

Customer Info: Names, contacts, and credit terms for each customer.

Invoice Details: Invoice number, issue date, payment due date, and how much is still owed.

Payment Terms: What’s the agreed credit period for each customer? In India, this could be 30, 45, 60 days—or even 120 if you’re dealing with big clients or government projects.

Your accounting software should already have this info. If you’re still using Excel or manual records, make sure everything’s updated before you dive in.

Step 3: Classify Invoices into Aging Buckets

Sort your unpaid bills into aging groups now. Typically, these categories are:

·         0-30 Days: Invoices that are still within the due period.

·         31-60 Days: Slightly overdue but manageable.

·         61-90 Days: Uh-oh, these are getting late.

·         91+ Days: Serious problem zone. These need immediate action.

Depending on your business, you might adjust these buckets. For instance, in India, especially with B2B or government clients, you could add a 120+ days bucket. That gives you a better view of extreme delays.

Step 4: Calculate the Total Owed for Each Bucket

Once you’ve got everything classified, it’s time to figure out how much is actually stuck in each bucket. Here’s how:

·         Subtract the invoice date from the report date (the day you’re creating this report) to see how many days the invoice has been unpaid.

·         Based on that number, throw the invoice into the appropriate aging bucket.

·         Add up the total for each bucket to see how much money is tied up.

If you’re doing this manually, Excel works fine. But if you’ve got accounting software, it can do this automatically and save you the headache.

Step 5: Spot Patterns in Customer Payments

Now, it’s time to analyze. The AR Aging Report is not just for showing you who owes what. It’s about spotting patterns.

Repeat Offenders: A few clients frequently appear in the past-due columns. It’s necessary to reevaluate their credit conditions.

Potential Bad Debts: Anyone hanging out in the 91+ days or 120+ days columns? You’re looking at possible bad debts. Watch out.

Review Your Credit Policy: If too many clients are constantly late, you may need to tighten your credit terms or start charging interest on late payments.

In India, it’s normal for some larger clients, especially government projects, to delay payments. But if smaller customers are always late, you need to be less lenient.

Step 6: Follow Up on Overdue Payments

The unpleasant part is about to begin: collecting your money.

Reminders: For invoices in the 31-60 days bucket, send a polite reminder. Don’t wait until it’s too late.

Aggressive Follow-Ups: Invoices in the 61-90 days bucket need more frequent follow-ups—weekly or even daily. Don’t be shy.

Escalation: If an invoice hits 91+ days, it’s time to get tough. Legal notices, stopping services, or even using debt recovery agencies may be necessary.

Yes, in India, dealing with late payments is normal, but that doesn’t mean you should let it slide. You need that cash to keep your business alive.

Step 7: Automate the Process

Let’s be real—manually doing this every month is a huge waste of time. Automate the process. Most modern accounting software has built-in AR Aging Reports. You can generate the report with just a few clicks. This not only saves time but also ensures you don’t make mistakes.

It is time to make the move if you are still doing things by hand. You’ll save hours and maintain more accurate data if you automate it.

Questions to understand your ability

Que.1 Why bother with an AR Aging Report?

a) To keep track of all the invoices you’ve sent out.

b) To split unpaid invoices by how late they are.

c) To figure out which products are selling well.

d) To calculate the cash flow coming into the business.

Que.2 What info do you need before you can create an AR Aging Report?

a) Stock levels and product details.

b) Customer names, invoices, and credit terms.

c) Employee salaries and monthly expenses.

d) Total profits from the last financial year.

Que.3 What does the 91+ Days bucket in an AR Aging Report mean?

a) These invoices are paid on time, no worries.

b) They’re a bit overdue but still not a huge problem.

c) These are way overdue, and you should act now.

d) They’re not yet issued; you can relax.

Que.4 What should you do when customers keep showing up in the overdue buckets?

a) Give them more time to pay, they’re struggling.

b) Ignore it, they’ll pay eventually.

c) Tighten their credit terms, they need to be managed better.

d) Raise their invoices to cover for the late payments.

Que.5 Why automate the AR Aging Report process?

a) So, you can collect more receivables automatically.

b) It’ll magically make customers pay faster.

c) Saves you tons of time, reduces mistakes, and makes everything more accurate.

d) Ensures you pay your suppliers faster.

Conclusion

If you’re serious about controlling cash flow, an AR Aging Report is not simply a “nice-to-have”—it’s a need. You must keep track of who owes you money and how much, as credit terms are lengthy and payments are frequently late in India. You may enhance your total cash flow, identify any bad debts early, and prioritize collections by segmenting your outstanding bills.

Provide your consumers the money they deserve. Maintain the cash flow of your company where it belongs—in your hands—by setting up that AR Aging Report and following up rigorously.