Accounts receivable ageing
An accounts receivable ageing schedule sorts everything customers owe by how long it has been outstanding — current, 30 days, 60, 90 and beyond. The older a balance gets, the less likely it is to ever be collected, which makes the schedule one of the fastest ways to see whether reported revenue is really cash the business will receive.
A balance sheet shows a single receivables number. The ageing schedule breaks that number apart by age, and age is the whole story — a customer thirty days late is normal in most trades; a customer past ninety days is usually not paying without a fight, and past a certain point the balance is closer to a write-off than an asset.
What to look for
- A growing share of the total sitting in the oldest buckets over time
- One or two customers carrying most of the aged balance — a concentration problem layered on top of a collection one
- Balances the seller has been carrying and rolling over rather than pursuing or writing off
Why it belongs in quality of earnings
Revenue that was booked but never collected inflates the top line without ever becoming cash. An ageing schedule is one of the first documents a buyer’s accountant asks for, precisely because it tests whether the earnings shown on the statements are actually earnings the business gets to keep.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Treadstone LawLegal commentaryHow to Read a Business's Financial Statements Before You Buy in Ontario
- 02Treadstone LawLegal commentaryCleaning Up Financial Statements Before Selling Your Ontario Business
- 03Treadstone LawLegal commentaryHow Long Does Due Diligence Take When Buying a Business in Ontario?
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