How to reduce aged receivables (NZ)

Your aged receivables report is the clearest picture of what your business is owed and how long it has been waiting. Most people read it once a month, wince, and file it. Here's how to read the ageing buckets, work out which invoices to chase first, and build a routine that shrinks the 60 and 90-day columns.

What the aged receivables report actually shows

Every accounting system has one — Xero calls it Aged Receivables Summary, others call it aged debtors or an AR ageing report. It takes every unpaid invoice, works out how long it has been outstanding, and drops it into a column:

• Current — not yet due. Nothing to do.
• 1–30 days — overdue, but recently. Usually an oversight: the wrong inbox, a missed approval, a holiday.
• 31–60 days — the customer has now ignored or missed at least one reminder. Something is wrong and nobody has said what.
• 61–90 days — the invoice is at real risk. Often a dispute nobody raised, or a customer with their own cash problem.
• 90+ days — recovery is hard and getting harder. This is the column that turns into a write-off.

Each invoice sitting in one of those columns is an aged receivable. The report is simply all of them, sorted by how long they have been waiting.

The total at the bottom is the number people quote. The columns are where the information is: the same $40,000 owed is a healthy business if it sits in Current, and a serious problem if it sits in 90+.

Why invoices age

Almost none of it is deliberate. In practice the 60 and 90-day columns fill up for four reasons:

1. Nobody followed up. The overwhelming majority. Chasing is awkward and it eats the working day, so the reminder never goes out.
2. The reminder went to the wrong person. Emails to accounts@ are easy to miss and easy to ignore. Nobody replies to say so.
3. There's an unraised query. A wrong PO number, a line the customer disputes, a job they think isn't finished. They're waiting for you to ask.
4. The customer genuinely can't pay yet. Worth knowing early, because a payment plan beats a write-off.

Notice that three of the four are only discovered by talking to someone. An invoice ages in silence — the report tells you it's happening, never why.

An aged receivables collection routine

Aged receivables collection is not a project you run once. It's a weekly habit, and it works in this order:

1. Pull the report weekly, not monthly. A month is long enough for an invoice to cross two buckets before you look. Weekly turns the report into an early warning instead of a post-mortem.
2. Work the 31–60 column first, not the 90+. This is the counterintuitive one. The oldest invoices feel most urgent, but they're the hardest to collect and they soak up your whole week. Invoices in the middle buckets are still very collectable, and every one you clear is an invoice that never reaches 90 days.
3. Sort by value inside each bucket. A handful of invoices usually make up most of the balance. Chase those before the long tail of small ones.
4. Phone, don't just email. If an email reminder was going to work, it would have worked already — that's what the bucket is telling you. A call surfaces the query, the wrong inbox and the cash problem in a couple of minutes. See how to chase an overdue invoice for the timing and what to say.
5. Agree a date and write it down. "I'll sort it this week" is not a commitment. "The 14th" is, and it gives you something specific to follow up on.
6. Escalate on a schedule, not a mood. Decide in advance what happens at 60 and at 90 days, so the decision isn't made when you're annoyed. Your options are in what to do when a customer won't pay.

Stop the next invoice ageing

Clearing the report is half the job; the other half is stopping it filling back up. Short terms beat the default 20th-of-the-month, a pay-now link removes the "I'll do it later" step, and a reminder on day one of overdue costs nothing. The wider set of levers is in improving cashflow by getting invoices paid faster, and if your terms don't already say what happens when a bill runs late, see charging interest on overdue invoices.

The bit that never gets done

Every step above is well known, and the follow-up is still the one that slips — because it's uncomfortable and it competes with the actual work. That's the job Gary does. It reads your Xero invoices, finds what's overdue, phones the customers you've approved during business hours, and reports back what each one said. The middle buckets get worked every week without anyone having to make the call, so fewer invoices reach 90 days at all.

If you're an accountant or bookkeeper looking at a client's ageing report rather than your own, Gary for accountants covers how referring works and what your client sees.

This guide is general information, not financial advice.

Common questions

What is an aged receivable?

An aged receivable is a single invoice a customer hasn't paid, labelled by how long it has been outstanding. Aged receivables, plural, are the whole set, grouped into buckets — usually current, 1–30, 31–60, 61–90 and 90+ days. The grouping matters more than the total, because how long an invoice has been overdue is the best predictor of whether you'll be paid.

What is aged receivables collection?

It's the work of getting the invoices on your ageing report actually paid — pulling the report, deciding which buckets to work, and following up until each one has a payment date. It is not the same as sending a debt to a collection agency: that's a last resort for invoices you have given up on, and it costs you a cut of the money. Most aged receivables are collected by someone simply making contact. The difference between the two is in invoice recovery vs debt collection.

What is a good aged receivables ratio?

There's no single number, and it varies by trade. A useful rule of thumb for a New Zealand small business is that the great majority of what you're owed should sit in Current and 1–30 days, and anything in 90+ should be rare enough that you can name each invoice. If the 90+ column is growing month on month, the follow-up isn't happening.

Which overdue invoices should I chase first?

Start with the 31–60 day bucket, highest value first. The oldest invoices feel most urgent, but they're the hardest to recover and they'll consume all your time. Invoices in the middle buckets are still very collectable, and clearing them stops them ageing into the column that becomes a write-off.

How often should I review the aged receivables report?

Weekly. A monthly review is long enough for an invoice to cross two ageing buckets before anyone looks at it, which turns the report into a record of what went wrong instead of a prompt to act.

Does chasing invoices by phone reduce aged receivables?

Yes, more than email does. Three of the four common reasons an invoice ages — the wrong inbox, an unraised dispute, and a customer who can't pay yet — only come to light when someone talks to the customer. A call also gets a specific payment date, which an email rarely does.