Your Aging Report is Lying to You
Your aging report is wrong! Or maybe I should say it is a bit misleading. This is why your aging report might be lying to you, and what to track instead…if you actually want to get paid. At a glance, your aging shows how much money is current, 30, 60, 90 days past due, and beyond. Of course that’s helpful, but what it doesn’t show you is often what matters more. Payment patterns, broken promises, historical payment data, and so much more. Here’s why I’m saying your aging report might be lying to you, and how to see what’s actually going on.
“Current” Doesn’t Always Mean “On-Time”
It’s one of the biggest misconceptions in credit. A customer can always be in the 0–30 bucket and still be chronically late. Why? Because they’re paying just enough, just often enough, to keep rolling forward, but not truly staying within terms.
Here is one example of a positive situation, that can show up as a negative. Net 30 terms, invoice on the 1st, payment comes on the 10th the following month. You apply it, and it’s not huge effort to collect. To your aging report? They are showing up past due. In reality? They’re someone you aren’t worried about, despite always showing up with a past due balance. Can you improve upon it, maybe? Is it worth it to start managing someone that doesn’t need managing?
Here is a better set of metrics to track alongside your aging.
Here’s what your aging report won’t tell you. Did your customer miss two payment promises last month? Did they bounce a check in April? Have they delayed a partial payment three cycles in a row? If you’re not tracking that manually, or using notes and behavior flags, you’re letting risk slip through the cracks. If a customer is consistently not keeping their commitment to you, that is a problem and a major red flag.
Payment trends over time matter a lot. The payment pattern of your customer is the best tool you have. Historical payment data and the best indicator of future data, and any changes in current payment patterns compared to prior patterns should be noted.
Revolving open balances. Are they continuing to rise? Is that rise from increased business, or a slow down in payments? This is something you can really see when performing annual credit reviews, and a pattern that must be noted.
Are there frequent disputes, request for credits, “missing information” that is slowing down payments. On the surface level and individually, these are completely normal. If they are all popping up frequently, there is an issue.
Patterns always matter more than snapshots. Let me say that again…PATTERNS MATTER MORE THAN SNAPSHOTS!
This is a world of stories. Each customer is unique, and has their own story to tell. From the accounts receivable perspective, that story is told with their payments. These stories all lead to your customer’s reliability and risk level.
Aging Reports Are Just the Starting Point
I’m not saying to throw your aging report in the trash. But treat it for what it is…a tool. A time-based indicator. If you’re serious about managing credit, not just watching it, you need to go deeper. That’s where the real credit pros separate themselves. That is where you take your department to the next level, new standards are set, and risk and cash flow change for the better.
The aging report is a compass, not a map. Use it to guide your attention, but never let it be your only source of truth. What you are trying to get to is finding the behaviors and patterns of your customers, and then shifting those to align with the agreed upon payment terms that have been extended to them.
What do you think though? Are patterns more important than numbers when it comes to tracking customers?
