Accounts receivable (AR) is money customers owe you. Accounts payable (AP) is money you owe vendors and contractors. An aging report groups both sides by how long each invoice has been outstanding, and reading it well is the difference between spotting trouble early and discovering it the morning payroll is due.
AR aging splits unpaid customer invoices into four buckets. The current bucket is invoices not yet past their due date — these are normal, and their size should track your monthly sales. The 31-to-60 bucket is one to two months late. The 61-to-90 bucket is two to three months late. The 90-plus bucket is over three months late and is where the danger lives. Invoices become dramatically harder to collect once they cross 90 days: customers have usually forgotten the original purchase, the salesperson has moved on, and the dollars often require a formal collections process rather than a friendly email.
The most useful summary number is the percentage of total receivables sitting in 60-plus days. Under 10 percent is healthy, 10 to 25 percent is a warning, above 25 percent is an active collections problem. The figure belongs on a weekly dashboard, not buried in a quarterly review.
Days Sales Outstanding (DSO) is the second number worth computing. Take the 90-plus dollar value plus half of the 61-to-90 value plus 30 days, divide by average daily sales, and you get the average number of days it takes to convert a sale into cash. Anything over 60 means you are effectively running a 60-day loan to every customer.
AP aging uses the same buckets but the interpretation flips. The current bucket is what is due soon — keep this close to your cash inflow timing so you can pay it without strain. The 30-to-60 bucket is deferred spending you have voluntarily taken on by stretching terms. A large 90-plus AP bucket paid down over months is fine because you negotiated it; a large 90-plus AR bucket is never fine.
For AR above 60 days, the actions are collections calls (small-balance invoices respond to a phone call, large-balance invoices require a written plan), early-pay discounts for current customers (2/10 Net 30 is the classic), and tightening new-sale terms to Net 15 until the aging normalizes. For AP, the actions are asking for Net 60 on the top vendors by spend and paying smaller, more frequent amounts rather than lump sums. Both sides get better together.