Aged Debt Analysis

Last Updated
November 14, 2012

Knowing ‘who owes you’ is not as important as knowing ‘when it was owed’. It is sufficient to know how much is owed to you in terms of a monthly period. Basically, the idea is to reduce the amounts in categories 2, 3 and 4 (see below), and also to ensure that the percentage of 2, 3 and 4 does not increase from one month to the next in any one category.

i.e. if category number 3 (currently showing 4.5%) increased to 6% the following month, you have failed to collect as much revenue in the 31 – 60 day category as you did last month. This slide is also the first sign of a longer term problem: if you do not work hard to reduce this important area you may be looking at legal remedies, or even write off – and that means spending money to get money.

Category number 1 is for the most recent full month, and if you allow 30 days credit this should add up to all of your sales for the past month.

Category number 2 is for all those invoices that are now 31 – 60 days after the invoice date. These are the most recent ‘debtors’ if you give 30 days to pay.

Category number 3 have not paid you after 60 days from the invoice date.

Category number 4 have not paid you for 3 months since the invoice date.

Day Category Amount in Category %

1

0 – 30 Days

380,000

67.5
2

31 – 60 Days*

147,000

26
3

61 – 90 Days

25,000

4.5
4

91 + Days

12,500

2

Total Amount Outstanding

£564,500 100%

The ‘sum’: 380,000 / 564,500 x 100 = 67.5%

* Below, 30 – 60 Day Analysis (from the above details)

Name Tel. No. Invoice No. Invoice Date Goods/ Service Amount

Brown Co.

02468 1357913

00000098

18/10/00

Code 3

16000

Smith

01234 5678900

11111198

22/09/00

Code 1

40000

Jones Bros.

04321 1234567

22222298

20/10/00

Code 2

23000

Allen

04321 9876543

33333398

15/10/00

Code 1

15000

White Co.

01234 6789012

44444498

03/10/00

Code 1

13000

£147000

An alternative to the above is to list all debtors by amount, regardless of age. This method is acceptable with small numbers of debtors.

However, with large numbers the ‘plan of attack’ should be to target specific areas to achieve your company targets.

If you need a high cash flow, concentrating on 0-30 days should provide this.

If you see a rising trend of debtors in the 31 – 60 day area: you can deploy your most effective person to recover company targets in this area.

You can also ‘mix and match’ by prioritizing the debtor ledger, as follows:

Aged Debt Analysis by Priority

Priority 1 0 – 30 Day Over £1000.00
Priority 2 31 – 90 Day Over £2000.00
Priority 3 0 – 30 Day Under £1000.00
Priority 4 31 – 90 Day Under £2000.00
Priority 5 91+ Day All

Action for Recovering Debt

You should raise a debtor list every week. Look at Telephone Collection for all the large accounts (large, is what you consider large) and send letters to all that remain. In my, humble, opinion you should never send two letters without telephoning the customer to find out why no payment has been received.

Our article on Telephone & Letter Collection Tips will give you further information on recovering debts yourself.

Alternatively, a debt recovery service can be consulted to help recover debts owed to your business. Click the link for more information or phone 0845 2515055.

Anyway, a telephone call is cheaper than a letter, a lot less bother/administration and gets you real information. It is what you do with that information that makes telephoning the customer a more powerful tool.

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