Aged debt

Aged debt is the money customers owe you, arranged by how long each invoice has been outstanding. Every open invoice in your accounts receivable is dropped into a time band - commonly 0 to 30 days, 31 to 60 days, 61 to 90 days and over 90 days - so you can see not only who owes you money but how stale that money has become.

Aged debtors means the same thing, named after the ledger rather than the money: your debtors are the customers, and the aged debtors report is the document that shows their balances by band. Aged creditors, or aged payables, is the mirror image on the buying side - what you owe your suppliers, aged the same way.

How to read an aged debtors report

Each row is a customer and each column is a band, with a total at the foot of every column. A customer with three unpaid invoices at different stages appears in more than one column. The band totals, not the grand total, are what tell you where to spend the morning.

A simple example. One customer, four open invoices, aged from the due date:

1. Invoice 10218, £1,400, 12 days past due - the 0 to 30 band.
2. Invoice 10233, £3,200, 41 days past due - the 31 to 60 band.
3. Invoice 10244, £680, 72 days past due - the 61 to 90 band.
4. Invoice 10251, £9,750, 104 days past due - the over 90 band.

The account totals £15,030, but £9,750 of that - just under 65% - sits in the oldest band on a single invoice. Ranking by total balance would put this customer alongside anyone else owing £15,000. Ranking by band puts one invoice at the top of today's call list.

What you can charge once an invoice is late

If you did not agree a payment date, UK law treats the payment as late 30 days after the customer receives the invoice or after you deliver the goods or service, whichever is later. Where a date is agreed it must usually be within 30 days for public authorities or 60 days for business transactions, and a longer period than 60 days between businesses has to be fair to both sides.

On a late business-to-business payment you can claim statutory interest of 8% plus the Bank of England base rate, unless the contract sets a different rate. You can also charge a fixed sum for recovery costs, once per payment: £40 on debts up to £999.99, £70 from £1,000 to £9,999.99, and £100 at £10,000 or more.

Taking invoice 10251 above, at £9,750 and 104 days late, and assuming a Bank of England base rate of 4% at the time - check the current rate before you calculate - the statutory rate would be 12%:

1. Annual interest: £9,750 x 0.12 = £1,170.
2. Daily interest: £1,170 / 365 = £3.21.
3. Interest over 104 days: £3.21 x 104 = £333.84.
4. Fixed recovery charge for a debt in the £1,000 to £9,999.99 band: £70.

Total claimable on top of the invoice: £403.84. Most businesses never charge it. Saying in writing that you are entitled to is often enough to move an invoice out of the oldest band, and if you do add it you have to raise a new invoice for the amount.

Using the report to protect cash flow

The value of the report is ranking, not arithmetic. A business with 40 open invoices cannot chase all of them equally, and a single large invoice sliding past 60 days does more damage than ten small ones at 15 days. Where your invoicing sits alongside the job or order it came from, you can also trace an overdue balance back to the delivery note, the site sign-off or the purchase order number that is actually holding it up.

Patterns in the report are worth as much as the balances. A customer who always sits in the 31 to 60 band is telling you their payment run, not their intentions, and the answer is usually shorter terms or a deposit rather than more chasing. A balance building across the over 90 band is a process signal: your credit control is not keeping pace with the invoices you are raising.