Why Your Accounts Receivable Aging Report Matters When Selling a Business

A business can show strong revenue and still have a problem hiding in the numbers.

Accounts receivable.

If your business has $500,000 sitting in A/R, the total only tells part of the story.

The next question is: How old is it?

There is a big difference between revenue you've earned and cash you've actually collected. And when someone is evaluating your business, that difference matters.

What Is an A/R Aging Report?

An accounts receivable aging report shows the money customers owe your business and how long those balances have been outstanding.

Typically, receivables are grouped into categories such as:

Current or under 30 days

31–60 days

61–90 days

More than 90 days

The longer an invoice remains unpaid, the more questions it can raise about whether that money will actually be collected.

Why Buyers Look at Accounts Receivable

When I'm reviewing a business, I don't just want to see how much revenue it generated.

I want to understand the quality of that revenue.

If a significant portion of accounts receivable is 90 or more days old, a buyer may want to understand why.

Is one customer responsible for most of it?

Are customers consistently paying late?

Are some balances disputed?

Is the business carrying receivables that are unlikely to ever be collected?

Those questions can become more important during due diligence.

Revenue and Cash Collection Aren't the Same Thing

A strong income statement can tell a good story.

But if sales are increasing while receivables are getting older, there may be more to understand.

That's why I think business owners should look beyond the total A/R number.

Look at the aging.

Look at which customers owe the money.

Look for balances that keep moving from 30 days to 60 days to 90 days.

And be realistic about anything that may never be collected.

Don't Wait Until You're Selling

You don't need to be preparing for a sale to pay attention to your accounts receivable.

A clean A/R aging report can help you better understand cash flow, identify collection problems earlier and get a clearer picture of the financial health of the business.

If you eventually decide to sell, you'll also be better prepared when a buyer starts asking questions.

Pull your A/R aging report this week.

Don't just look at the total.

Look at what's getting old.

Because if you're not paying attention to it, a buyer eventually will.