A/R and A/P aging

Definition

An aging sorts open balances by how long they have been outstanding. Accounts receivable (A/R) aging lists what customers owe the operation; accounts payable (A/P) aging lists what the operation owes suppliers. Each open invoice is placed in an aging bucket (e.g. current, 1–30, 31–60, 61–90, over 90 days) by its age on the as-of date.

Age is normally measured from the invoice date. Some lenders and accounting systems age from the due date instead, which makes the same invoice look younger by the length of its terms. The loan agreement states which basis the borrowing base uses.

Two report forms matter:

Aged summary: one row per customer or vendor with bucket totals.
Aged detail: one row per open invoice with its date, amount and open balance. The detail is what an aging test is applied to; it must tie to the summary and to the balance sheet control account.

For lending, receivables past the aging cutoff become ineligible (see eligible collateral). Payables matter because some lenders deduct them from the borrowing base or from availability (see borrowing base).

Formula

Plain text:

days outstanding (invoice) = as-of date − invoice date
eligible A/R               = Σ open balance where days outstanding ≤ cutoff
                             − other ineligibles (intercompany, cross-aged, contras)
% past cutoff              = open balance past cutoff / total open A/R × 100

LaTeX:

d_k = t_{\text{as-of}} - t_{\text{invoice},k}

\mathrm{AR}_{\text{elig}} = \sum_{k \,:\, d_k \le D} B_k \; - \; X

B is an invoice’s open balance at the as-of date, D the cutoff in days and X other ineligibles.

How to pull it in DC305

DC305 is not the source for aging. It holds no invoices or vendor balances.

Pull the aged detail report from the accounting system (general ledger or farm accounting package) with the as-of date set to period end, not the date the report is run. Export both A/R and A/P detail, and the matching aged summaries, and check that:

Detail totals equal summary totals by customer or vendor.
Total A/R and total A/P equal the balance-sheet control accounts at period end.
Related-entity customers and vendors are flagged for intercompany eliminations.

Milk receivables are usually better taken from the cooperative or processor statements than from accounting A/R (see milk check).

Typical range

Herd context: US dairy and farming operations reporting to ag lenders; terms vary by lender.

Standard buckets: current, 1–30, 31–60, 61–90 and over 90 days.
Common eligibility cutoff: 90 days from invoice date; 60 days, or 60 days past due, on some lines.
Cross-aging: a customer’s entire balance may become ineligible when more than about 50% of it is past the cutoff.
Healthy A/R: most of the balance in the current and 1–30 buckets; over-90 balances a small share of the total.

Common mistakes

Running the aging as of today instead of period end. Payments received after period end then shrink the balance, and invoices age past the as-of date. Always set the as-of date.
Using the summary without the detail. An aging test needs invoice dates; check the detail ties to the summary first.
Mixing invoice-date and due-date aging between periods or entities.
Counting credits and unapplied payments as positive balances, or leaving them in a bucket where they mask past-due invoices.
Including intercompany balances in eligible A/R, or in deductible A/P.
Double-counting accrued interest. The lender’s own interest bill sitting in A/P duplicates accrued interest already in the loan position; offset it.