Every distributor extends credit. When you deliver on Net 30, you are lending the customer the value of the order for a month. The question is whether you are doing it on purpose, to customers you chose, for as long as you agreed, or by accident.

The AR aging report is where you find out.

What an AR aging report shows

An AR aging report lists every open customer invoice and sorts the unpaid balance into columns by age. Each customer gets a row, each age range gets a column, and the totals at the bottom show how much of your money is sitting with customers and how long it has been there.

There are two common ways to count age:

  • From the due date. The columns read Current (not yet due), 1 to 30 days past due, 31 to 60, and over 60. This tells you directly who is late and by how much.
  • From the invoice date. The columns read 0 to 30 days old, 31 to 60, 61 to 90, and over 90. It is simple, but a Net 7 invoice and a Net 30 invoice of the same age land in the same column even though only one of them is late.

Either method works if you use it consistently. If your customers are on mixed terms, aging from the due date is easier to act on. The column widths should fit your terms too: a book mostly on Net 7 learns more from weekly columns in the first month than from 30-day ones.

How to read it

Read the aging in three passes.

  1. The totals row. Is the share of the balance in the older columns growing from one month to the next? Compare against your own history. There is no outside number that tells you what your mix should be.
  2. The biggest balances in the oldest columns. A handful of accounts usually explain most of the old money. Those are the calls to make this week.
  3. Customers moving right. An account that was current last month and is now past due is the early warning. A call at ten days late is an easier conversation than a call at sixty.

Pair the aging with DSO (days sales outstanding). DSO tells you how long customers take to pay on average; the aging tells you which customers are behind. DSO 101 covers the formula and how to compare it with your terms.

Clean the data before you act on it

An aging report is only as good as what feeds it. Before anyone picks up the phone, check four things:

  • Unapplied cash. A payment received but not applied to invoices leaves the customer looking late. Apply payments every day, including partial payments and checks that pay several invoices at once.
  • Open credits. A credit memo sitting unapplied on the account makes the customer's total right but the invoice columns wrong. Apply each credit to the invoice it relates to.
  • Disputed invoices. If an invoice is held up by a short delivery or a price question, note it on the account. A collection call about an invoice the customer is already disputing goes nowhere.
  • Invoice timing. If invoices post days after delivery, the aging understates what is owed and every due date starts late. Invoice when the goods ship or deliver.

Four levers that bring the old columns down

1. Credit limits checked before the order

Give every account a limit. Check it when the order is placed, against open invoices plus orders not yet invoiced, not after the truck is loaded. When an account goes over, the order waits for a decision: a payment, a higher limit or a credit hold. The point is that a person decides, rather than exposure growing by default.

2. A collection cadence that is written down

Decide the steps in advance and follow them the same way for every account. Here is an example cadence for customers on Net 30. Adjust the timing to your own terms.

  • A statement goes out on a set day each month.
  • A reminder email goes out when an invoice passes its due date.
  • AR or the rep calls at about two weeks past due.
  • At about a month past due, the conversation turns to a hold or cash on delivery.
  • For the oldest balances, decide on outside collection or legal action with your accountant or attorney.

The specific days matter less than doing the same thing every time. Improvised collections tend to chase whoever answers the phone, not whoever owes the most.

3. Terms that match the risk

Net 30 does not have to be the default for everyone. Many businesses start new accounts on shorter terms or cash on delivery and extend terms once the account has a payment history. Shortening terms for an account that keeps paying late is a reasonable response, and so is restoring them once the account pays on time again. Write the policy down so reps can explain it and do not negotiate it account by account.

If you sell fresh produce, the payment terms you agree to can affect your trust protection as a seller. Consult USDA's PACA program before you set or change them.

4. Make paying easy

Some late payments come from friction, not intent: a customer who has to find a checkbook, or call to ask what is open. Card and ACH options, autopay for regular accounts, and statements that list exactly which invoices are open all remove reasons to wait.

Keep credits and write-offs apart

A credit memo for a damaged case is service recovery: the customer did not get what they were billed for. A balance written off as uncollectible is a bad debt: you delivered and were never paid. Both reduce what the customer owes, but they mean different things and belong in different accounts. Track them separately so a rise in one is not hidden inside the other. Credit-memo discipline covers how to tag and review credits.

A weekly AR routine

  1. Apply every payment and credit received since last week.
  2. Review the aging, oldest column first.
  3. Make the cadence calls due this week and log the answer on the account.
  4. Review every account on hold: release it, keep it, or escalate it.
  5. Check the trend in the totals row against last month.

None of this is complicated. It works because it is done every week, not when cash gets tight.

How APFoodz handles it

In APFoodz, credit checks run before an order is placed, and statements and reminders go out after. Payments are matched to customers and invoices through cash application.