1. Why Owners Get This Wrong
When most owners decide whether to ship the next order, their first thought is: "We've worked together for years — how can I cut them off?"
A veteran CFO sees an entirely different problem: You are financing your customer.
Goods out, cash not back — that is an interest-free, unsecured loan. The P&L looks healthy and sales are growing, but the cash actually reaching your account may have long since run dry.
Profit is an opinion. Cash is a fact. The goods have shipped and the order is signed, yet the money sits with the customer — the P&L still counts it as earned. Whether the cash ever arrives is not its concern.
Many companies are clearly "profitable" yet regularly struggle to make payroll. Accounts receivable is money you have lent out — you simply have not collected it yet.
2. How to Age Your Accounts Receivable
Receivables ageing, in plain terms, is how long each outstanding invoice has run past its due date.
Owners do not need a definition; they need a tool — sort every customer balance by how long it has been outstanding. Four standard buckets:
0–30 days: normal | 30–60 days: monitor | 60–120 days: alert | Over 120 days: stop supply
These four buckets are drawn from collection data across a large number of SMEs. The core logic comes down to one line: The longer a debt runs, the more bad-debt risk rises — exponentially.
Payment within 30 days is a normal credit term; 30 to 60 days calls for follow-up; beyond 60 days enters the high-risk zone; beyond 120 days it will most likely never be recovered — not because you are unwilling to chase it, but because the customer may already be entering insolvency proceedings.
3. Do Not Confuse Two Measures
When reviewing ageing, two measures are routinely conflated: By value vs. by customer count.
| The first measure tells you | how much cash is trapped. | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| The second tells you | whether a few large accounts are stretching payment, or the problem is systemic. | 4. A Worked Example | ||||||||||||||||||||||||
| Assume the current receivables ledger looks like this: |
| Note one detail: | ||||||||||||||||||||||||
| The 60-day-plus buckets already account for 34% of total receivables. | This suggests some customers are persistently stretching payment — they have not forgotten; they are testing your limits. Next month they roll into the next bucket and the overall mix deteriorates. The value of an ageing schedule is that it | tells you in advance when the danger will arrive. | ||||||||||||||||||||||||
| 5. How to Use the Three Thresholds |
| An ageing schedule is not a financial statement. It is a cash-flow early-warning device. | ||||||||||||||||||||||||
Fifteen minutes a week is enough to contain collection risk before it takes hold. The CFO Toolkit | Today's Takeaway Watch one metric: receivables over 120 days as a share of the total. The red line is 20% — above it, start collection proceedings and suspend new shipments. How? Open your ERP or receivables ledger, filter every customer beyond 120 days, and calculate their share of total AR. If it is approaching 20%, revoke that customer's shipping authorisation.
Three Checks to Run Today
First, pull the receivables ledger (export it from your ERP, accounting software or Excel). Second, build an overdue-customer list using a "more than 90 days outstanding" cut-off, marking amounts and shares. Third, review your top five customers — is any single balance approaching one month of your fixed overheads?
| Relationships are relationships; cash flow is cash flow. Reading the ageing distribution is far more useful than listening to a customer's explanation. | Before a critical decision, have a veteran CFO review it. | © Aithony · AICFO · The Owner's CFO Masterclass | Before a critical decision, have a veteran CFO review it |
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| Disclaimer | USD 70K | 10% | Escalate to legal or write off as bad debt; stop supplying |
| Total | USD 700K | Over-120-day share is 10% — below the red line for now | |
Note one detail: The amounts climb from the Normal bucket to Watch to Warning. This means some customers are dragging out payments on purpose — they have not forgotten; they are testing your limits. Next month they slip into the next bucket and the overall ratio worsens. The value of an ageing table is: it tells you in advance when trouble is coming.
5. How to use the three thresholds
| Bucket | Trigger | Act now |
|---|---|---|
| Normal (green) | Over-120-day share < 20% | None — run the normal process; just review the trend weekly |
| Watch (yellow) | Over-120-day share ≥ 20%, or a fast rise in the 60-day-plus buckets | Pause all new shipments to overdue customers; chase one payment by phone every day |
| Danger (red) | Over-120-day share ≥ 30% | Stop all shipments to overdue accounts and bring in legal; negotiate a repayment plan customer by customer |
An AR ageing table is not a financial statement — it is a cash-flow early-warning system. Fifteen minutes a week is enough to keep collection risk in its infancy.
CFO Toolkit | Today's Takeaways
Watch one metric above all: the share of receivables over 120 days old. The red line is 20% — cross it and you start collections and pause new shipments. How? Open your ERP or AR ledger, filter every customer over 120 days, and calculate their share of total receivables. If it is close to 20%, cut off that customer's shipments immediately.
Run these three self-checks now
First, pull the AR ledger (export from your ERP, accounting software, or Excel). Second, list every overdue customer above the 90-day mark with amounts and shares. Third, check your top five customers — does any single customer owe close to one month of your fixed costs?
Relationships are relationships; cash flow is cash flow. The ageing distribution tells you more than any customer explanation.
Before making key decisions, have a veteran CFO review them.
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