Example
Five invoices totaling $12,400: $2,500 current, $2,400 in 1 to 30, $2,600 in 31 to 60, $1,800 in 61 to 90 and $3,100 over 90 days. The total looks fine. The last bucket does not.
What it means in practice
An aging bucket groups what you are owed by how overdue it is rather than by how much it is. The standard set is current, 1 to 30 days, 31 to 60, 61 to 90, and over 90.
Buckets are counted from the due date, not the invoice date. An invoice raised 45 days ago on net 30 terms is 15 days past due and sits in the first bucket, not the second.
They exist because money behaves differently at different ages. An invoice a week late usually needs a reminder; one at ninety days usually needs a decision. Reading the buckets instead of the total is what turns a number into an action.
The mistake to avoid
Aging from the invoice date instead of the due date, which makes everything look a month worse than it is and starts arguments that did not need to happen.
Work it out
Where the buckets come from
The thirty-day steps are not a rule anywhere, they are a convention that stuck because most terms are net thirty and most businesses review receivables monthly. Some finance teams use two-week bands, and a business selling on net seven will find thirty-day buckets far too coarse to be useful.
A second example
A plumber is owed $9,800. Read as a total that is a good month. Read as buckets it is $1,200 current, $600 at 1 to 30, and $8,000 from one commercial client sitting past ninety days. The total says nothing. The buckets say the business has one problem, not a collections problem.
Related terms
- Collection effectiveness indexA score, as a percentage, of how much of the money available to collect in a period you actually collected.
- Days past dueHow many days have passed since an invoice's due date, not since it was raised.