Outstanding Payments and the Ageing Report: A Guide for MSME Owners

What is an ageing report, and why do owners need it?

An ageing report lists the money customers owe you and groups it by how old it is. A typical grouping is not yet due, 1 to 30 days overdue, 31 to 60, 61 to 90 and over 90. It tells you how much is stuck, how long, and which customers to call.

Many owners know the total outstanding. Few know how old it is. A total of Rs. 40 lakh (example) may be healthy if most of it is not yet due. The same total may be dangerous if most of it is over 90 days.

Delayed payment hurts in a quiet way. You still pay salaries, suppliers and taxes on time. If customers pay late, you delay your own vendors or borrow. This is why outstanding payments and cash are watched in every monthly review.

Why is "how much" not enough?

Because age changes the risk. Money that is 10 days overdue is usually a reminder. Money that is 120 days overdue may be a dispute, a quality complaint or a lost customer.

Look at the question in two parts: how much, and how old? The second question is the ageing.

What does the report contain?

A good ageing report is built from an invoice register. One line per invoice. The main columns are:

• invoice number, date and customer
• salesperson
• invoice total, credit days and due date
• amount received and balance
• days overdue and ageing bucket
• last follow-up and the latest promise to pay
• dispute, if any

From these lines the report builds views that each person can use:

There is also a place for old outstanding amounts that need recovery, kept apart so that they do not hide the fresh ones.

Who owns what?

Accounts owns the numbers. Sales owns the collection. The owner owns the review.

Sales owns collection because the salesperson has the relationship. Accounts owns the figures because it keeps the books. The owner reads the report every month and asks about the old items.

How should the weekly follow-up run?

1. On a fixed day each week, Accounts sends each salesperson the list of his customers, with overdue invoices.
2. The salesperson calls or visits and notes the reply.
3. He records a promise: the date and the amount.
4. Next week, the promise is checked. A broken promise moves up the list.
5. Disputes are written down with a reason, for example "rate difference" or "quality complaint", and sent to the person who can solve them.

For customers who may pay late, send a reminder two to five days before the due date. It is much easier than chasing after.

How to start in your plant

If you have no ageing report yet, start simply. For each customer write three things: the total outstanding, the invoice date, and the days since the invoice. Then group the amounts into three: already due, due this month, due later. No forecasts yet.

1. List all open invoices from your accounts software.
2. Add the due date for each, based on the agreed credit days.
3. Group by customer and by age.
4. Send the list to each salesperson once a week.
5. Review the totals in the monthly business review.
6. When it runs well, add the buckets, the follow-up log and the collection plan.

What should the owner look at first?

Go to the oldest group, over 90 days. Look at each customer there. Is it a dispute, a quality complaint, a rate difference or simply a delay? Each reason needs a different action, and a different person. Then look at customers who are over their credit limit and still receiving material. Stopping new dispatch to such a customer, politely and clearly, is often the quickest way to protect cash.