How Long Can accounts receivable be outstanding?

Accounts receivable, or receivables, is the value of everything debtors owe to a business. It is the sum of all a business’s outstanding invoices or the money owed to the business in exchange for goods and/or services it has already supplied.

Accounts receivable is an asset that becomes part of a business’s working capital once the debtors pay their invoices.

As an example, if a manufacturer delivers $10,000 worth of stock to its customer and that customer has been offered 30-day credit terms.  The manufacturer will have $10,000 of accounts receivable from that customer up until the customer pays for those goods.  In other words, for up to 30 days, or longer if the customer doesn’t pay on time.

It is essential for businesses to carefully monitor their accounts receivables to ensure they receive all payments by the due date. And if a customer is late in paying their debt, it’s vital that the business immediately follows up with the customer to sort out any issues that may have contributed to the late payment.

What is Debtor Ageing?

Debtor ageing is a tool that small businesses can use to monitor the status of their accounts receivable. This tool takes the form of a report that groups outstanding invoices by customer and date range. The date groupings are usually 1-30 days overdue, 31-60 days past due, 61-90 days overdue, 91-120 days past due and 120+ days overdue.

Debtor ageing serves a number of purposes. It helps small businesses:

• track the monetary value of their accounts receivable so they know how much money is at risk of not being paid
• determine which customers, if any, are more often late with their payments and thus are more troublesome

In general, a healthy accounts receivable shouldn’t ever contain payments that are late by more than 60 days.  Unless the business has reached an agreement with the debtor. This is because the longer an invoice remains overdue, the less likely it is that the debt won’t be collected in full — or at all.

If the same customer has more than one overdue invoice.  This should be a red flag that indicates a problem with that debtor’s cash flow. The creditor in this situation would be well served by contacting the customer to organise payment and may consider the pros and cons of discontinuing to serve the customer until all payments have been made.

Similarly, if a customer continuously pays their invoices after the due date, debtors should exercise their right to claim any late payment fee that’s detailed in their sales Agreement.

Here’s an example of a debtor ageing report:

How to Monitor Your Accounts Receivable

If you’re not currently monitoring your accounts receivable, there are a wide variety of tools available, at a very reasonable price.  These tools can help you calculate and track late payments. Be sure to use such tools regularly so you’re alerted to any issues early on. And be aware that these tools are only as good as the data you supply them with. If you forget to input sales, the software can’t track them.

You should also have a system in place for acting on late payments. When your chosen accounts receivable software alerts you to an overdue payment, you should know what actions you’re going to take and when. If you’d like some help with this, see our top tips on collecting late payments.

Once you’re accurately tracking your accounts receivable, you can also turn those unavailable funds into cash using invoice financing. This alternative funding solution can enable you to sell your accounts receivable, or parts thereof.  So you don’t need to wait for customers to pay their invoices before you can make use of those funds.

Receivables refer to debts owed to a company. If a business agrees to provide its products or services and accept payment later, such as 30-day or 90-day payment terms, those items qualify as outstanding receivables until such time as they are paid off. One common receivable is the credit account -- if your business sells items on credit, the accounts become outstanding receivables until they are settled.

Recorded as Assets

1. Receivables are listed as assets on the balance sheet, as your company expects reimbursement. Think of them as a business IOU. Where specifically you record them depends on the nature of the obligation. Short-term receivables -- generally those due within one year -- fall under current assets. Those with longer payment windows fall under the long-term assets category.

Getting the Bills Paid

1. Although outstanding receivables are assets, they don’t do much for your current cash flow. Collecting on outstanding receivables can make or break a small business, as making a sale has little value if payment can’t be collected promptly. If certain receivables prove consistently difficult to collect, whether from a particular client or financing promotion, a business may have to adjust its policies to mitigate the risk that the debt will become uncollectable.

   What happens if accounts receivable is not paid?

   When receivables or debt will not be paid, it will be written off, with the amounts credited to accounts receivable and debited to allowance for doubtful accounts.

   What does outstanding account receivable mean?

   Accounts receivable outstanding is the amount that your customers owe for products or services that they have purchased but have not yet paid for. Accounts receivable outstanding, also called “ARO” or “AR,” is an important metric used in financial analysis for calculating a company's liquidity.

   How many days on average are receivables outstanding?

   Days Receivables Outstanding measures the number of days it takes a company to collect cash generated from sales. This is generally the average number of days between invoicing a customer and collecting payment. ... Calculation..

   What is AR collection period?

   What is the Accounts Receivable Collection Period? The accounts receivable collection period compares the outstanding receivables of a business to its total sales. This comparison is used to evaluate how long customers are taking to pay the seller.