Credit control and the aged debtors report

An aged debtors report lists what each customer owes and sorts it into columns by how long each invoice has been outstanding, usually current, 31 to 60 days, 61 to 90 days and over 90 days. Read it from the right: the older columns show where cash is stuck and where bad debts are likely. Late payment falls when credit is granted carefully, invoices go out quickly and accurately, and overdue accounts are chased on a fixed timetable.

What does an aged debtors report actually show?

The report is produced from the sales ledger. Each customer has one row showing the total balance, then the same balance split by age. Most software lets you age either by invoice date or by due date. Ageing by due date is more useful for credit control because it shows what is genuinely overdue; ageing by invoice date is more useful for comparing customers on different terms against a single yardstick. Pick one basis and keep it, otherwise month to month comparisons mean nothing.

ACCA’s guidance on accounts receivable management describes the aged analysis as the report that shows the amounts outstanding from each customer and for how long, and so indicates any breaches of credit terms. It pairs it with a credit utilisation report, which shows how much of each customer’s credit limit is being used. Taken together, the two reports show how exposed the business is to its customers.

Before you rely on the report, check that its grand total agrees to the trade debtors balance in the nominal ledger. If it does not, the difference has to be found first; see sales and purchase ledger control accounts and the general ledger and subsidiary ledgers.

How do you read the report in practice?

Work through it in this order:

1. Total and trend. Compare the total and the over 90 days column with the last three months. A stable total with a growing old column is a warning even if sales are flat.
2. Concentration. Note what share of the total sits with the largest two or three customers. A single large customer slipping can do more damage than many small ones.
3. Old items. For every balance in the oldest columns, find out why it is unpaid: dispute, missing purchase order, wrong address, cash flow trouble at the customer, or simply nobody has chased.
4. Negative items. Credit balances and unallocated receipts show up as negative figures. They usually mean a payment has not been matched to an invoice, or a credit note has been raised but not allocated. Until they are cleared, the ageing is misleading because old invoices may already have been paid.
5. Credit limits. Compare each balance to the customer’s limit and flag any breach.

What does a worked example look like?

Illustration only. A small wholesaler with 30 day terms runs its report at 31 March, aged by due date.

Customer	Total £	Not yet due £	1 to 30 days overdue £	31 to 60 days overdue £	Over 60 days overdue £
A Ltd	12,000	8,000	4,000	0	0
B Ltd	6,500	0	1,500	2,000	3,000
C Ltd	3,200	3,200	0	0	0
D Ltd	1,800	0	0	0	1,800
Total	23,500	11,200	5,500	2,000	4,800

A Ltd is slightly late but nothing is old, so a reminder call is enough. B Ltd is the real concern: it owes money in every overdue column, which suggests it is paying the newest invoices and leaving the old ones, or is short of cash. The next step is a call to a senior contact, a hold on further credit until a payment plan is agreed, and a check of its latest filed accounts. D Ltd’s balance is a single disputed invoice; it needs the dispute resolved, not more reminder letters. About 20% of the ledger is more than 60 days overdue, which is the figure to track month by month.

Which processes reduce late payment?

Most late payment is caused before the invoice is ever overdue. ACCA identifies three areas: assessing creditworthiness before giving credit, setting and monitoring terms, and collecting cash.

Before giving credit

• Check the customer. Companies House lets anyone view company information, officers, filed documents, charges and insolvency information free of charge, and you can set up free email alerts when a company changes its details. ACCA also lists bank and trade references and credit reference agencies.
• Set a credit limit and let it grow slowly. ACCA warns of the customer who places a small order, pays promptly, then places a large order and delays payment.
• Put terms in writing at the start: the credit period and whether interest will be charged on late payment.

When invoicing

• Invoice the same day the work is done or goods are delivered. ACCA notes that a slow or inaccurate invoice signals an inefficient collection system, and some customers use an error as a reason to stop paying every invoice on the account.
• Quote the customer’s purchase order number and send the invoice to the named accounts payable contact.

After the due date

• Send statements monthly and chase by phone as well as by letter; ACCA observes that calls to a suitably senior person often work better than letters.
• Escalate on a fixed timetable, for example reminder at 7 days overdue, call at 14 days, stop further supplies at 30 days, final notice and statutory interest after that. ACCA cautions that stopping supplies only works where the customer cannot easily buy elsewhere.
• Record every promise to pay and follow it up the day after the promised date.

What does the law let you charge a late payer?

For business to business sales, the government’s late payment guidance explains that if no payment date is agreed, payment becomes late 30 days after the customer receives the invoice or after you deliver the goods or service, whichever is later. An agreed payment date should usually be within 60 days for business transactions, and longer only if it is fair to both businesses (30 days where the customer is a public authority).

Once a payment is late you can claim statutory interest at 8% plus the Bank of England base rate, unless the contract sets a different interest rate. You can also charge a fixed sum for recovery costs, once per payment:

Amount of the debt	Fixed recovery sum
Up to £999.99	£40
£1,000 to £9,999.99	£70
£10,000 or more	£100

The guidance says to send a new invoice if you decide to add interest.

If your customer is a large company or LLP, it has to publish reports on its payment practices at least twice a year, including its average time to pay suppliers and the proportion of payments not made on time. A large business for this purpose meets at least two of: £54 million turnover, £27 million on the balance sheet, 250 employees. Checking these reports before agreeing terms tells you how long you are likely to wait.

Which ratios should you track alongside the report?

The receivables collection period, often called debtor days, is trade receivables divided by credit sales, multiplied by 365. ACCA notes that a rise can indicate weaker credit control or emerging bad debts. Two practical points: trade debtors include VAT while sales are usually net of VAT, so either gross up sales or strip VAT from debtors before comparing; and use the same months each time, because a single large invoice raised on the last day of a month distorts the figure.

When does an old debt become a bad debt?

The aged report is the main evidence for deciding which debts to write off or provide against in the accounts. Under FRS 102 a provision needs objective evidence of impairment, so the age of the debt is a starting point, not a rule; see impairment of trade debtors.

VAT is separate. HMRC’s VAT Notice 700/18 allows bad debt relief only once the debt has been unpaid for at least 6 months from the later of the date payment was due and the date of supply, the VAT has been accounted for and paid, and the debt has been written off in your VAT accounts and transferred to a separate bad debt account. The claim goes in box 4 of the return. Businesses on the VAT cash accounting scheme only pay VAT on what they receive, so they do not need the relief. The tax and accounting treatment is covered in bad debts: accounting, tax and VAT relief.

What mistakes come up most often?

• Unallocated cash. Receipts posted to the account but not matched to invoices make old invoices look unpaid and lead to chasing customers who have already paid.
• Ignoring disputes. A disputed invoice will not be paid by sending reminders. Log it, give it an owner and resolve it, or raise a credit note.
• Changing the ageing basis. Switching between invoice date and due date ageing makes trends meaningless.
• Chasing late. Starting collection only when an invoice is 60 days old wastes the period when the customer is most likely to pay.
• Not reconciling. An aged report that does not agree to the nominal ledger cannot support the debtors figure in the accounts or a bad debt claim.
• Writing off without evidence. Keep the chasing history, the dispute file and any insolvency notice. These support the write off for tax and the VAT relief claim.

Solar Protect provides tax investigation insurance for businesses and fee protection schemes for accountancy practices. Read how our cover works or get a quote.

Related Accountapedia entries

• The aged creditors report
• Debtor days
• Working capital management
• Unallocated receipts and customer overpayments
• Recording credit notes and refunds

Sources

• ACCA: Arm
• ACCA: Performance appraisal
• GOV.UK: Late commercial payments interest debt recovery
• GOV.UK: Charging interest commercial debt
• GOV.UK: Print
• GOV.UK: Check when businesses pay invoices
• GOV.UK: Get information about a company
• GOV.UK: Relief from vat on bad debts notice 70018

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.