Aging report damage comes from a few receivable habits, not one

Receivables errors do not lose money the way payables errors do. They lose information, and the information they lose is the one thing a small business most needs: an accurate view of who owes what, and how likely it is to arrive.

Nine of them are below. Each carries the entry that produced it, what it hides, and the correction. All amounts are invented, and the ordering is roughly by how long the error typically survives.

What to take away

1. Recording a receipt as new income

A payment lands in the bank and is coded to a sales account because it arrived as a deposit.

What it hides: that the sale was already recorded when the invoice was raised. Revenue is now doubled and the customer still shows as owing. Correction: the receipt reduces what the customer owes and touches income not at all. The timing rule behind this is the whole subject of the revenue recording guide.

2. Leaving cash unallocated

A receipt is recorded against the customer but not matched to specific invoices.

What it hides: which invoices are actually open. The aged report shows old invoices unpaid and a credit floating at the bottom of the account, so the oldest debt gets chased and the customer is annoyed. Correction: allocate at the point of receipt, using the remittance advice, and ask the customer where one is missing.

3. Treating a deposit as a sale

Money taken in advance for work not yet started, recorded as income.

What it hides: a liability. The business owes work, not a sale. Correction: hold it as money received in advance until the invoice for that work exists, then apply it. The effect on the balance sheet is a liability that should be there and is not.

4. Using a write-off where a credit note belongs

A customer disputes part of an invoice, the business agrees, and the amount is written off as a bad debt.

What it hides: that the sale was wrong. A credit note reduces income, which is what happened. A write-off leaves income intact and records a bad debt cost, which says the customer refused to pay for something they owed.

Correction: use a credit note when the invoice was wrong, a write-off when it was right and the money is lost, and keep the two decisions separate. They are also treated differently for tax, which the federal guide to business expense resources is the reference for rather than any figure quoted here.

5. Netting receivables against payables

A customer who is also a supplier, with the two balances quietly offset in one place.

What it hides: both balances. The customer ledger no longer agrees to the control account, and neither side of the relationship can be read. Correction: post a contra explicitly through both ledgers, with a document both parties have agreed, as the accounts payable guide describes from the other side.

6. Invoicing only at month end

Work delivered throughout the month, invoiced in one batch on the last day.

What it hides: nothing in the ledger, but it costs real cash. Every invoice raised on the 30th for work done on the 3rd has already spent 27 days of its terms. Correction: invoice on delivery. This is the cheapest improvement to collection available and it requires no conversation with anyone.

7. Chasing disputed invoices

A customer raises a query, nobody records it, and the automated reminders keep going.

What it hides: the real reason an invoice is unpaid. The business reads a collection problem where it has a delivery problem, and the customer reads a business that is not listening.

Correction: a dispute flag on the invoice that suspends chasing, with a named owner and a date. What you may and may not do when pursuing a balance is partly a legal question, and the federal guidance for businesses on credit and finance is where to start on it.

8. Journals posted straight to the receivables control account

An adjustment posted directly to the control account rather than through a customer.

What it hides: the disagreement between the customer ledger and the balance sheet, which then cannot be resolved because nobody knows which is right. Correction: restrict posting rights to control accounts and agree the two totals every month end.

9. Reading the aged report as a forecast

Assuming everything in the current bucket arrives on its due date.

What it hides: the customers who are consistently late, which your own history already tells you. Correction: forecast collections from what each customer has actually done, and feed that into the cash flow statement work rather than the terms on the invoice.

The corrections in one table

Common questions