Accounts receivable ageing, explained simply
A recent invoice is very likely to be paid; one unpaid for six months may not be. Sorting by age shows how much of the balance is realistically worth its face value, and which customers account for the overdue amounts.
Diligence also tests subsequent collections, meaning which year-end balances were actually paid in the weeks after the balance sheet date.
Receivables by age
IllustrativeAlder Creek Manufacturing, December 2025, $ millions
Most of the over-90-day balance is a single disputed 2024 invoice.
Worked example
| Days outstanding | $ millions | Share |
|---|---|---|
| Current (not yet due) | 4.3 | 61% |
| 1–30 days past due | 1.5 | 21% |
| 31–60 days past due | 0.6 | 8% |
| 61–90 days past due | 0.3 | 4% |
| Over 90 days past due | 0.4 | 6% |
| Total | 7.1 | 100% |
Alder Creek Manufacturing, Inc. is a fictional company. All figures are illustrative.
The company holds a $0.1 million allowance for bad debts. Most of the over-90-day balance is one disputed 2024 invoice, and diligence estimates that $0.45 million may not be collected. The additional $0.35 million reduces working capital. Because it relates to sales outside the LTM period, LTM EBITDA is unchanged.
Why it matters in a deal
Uncollectible receivables inflate working capital, so the buyer may pay for cash that will never arrive. Old balances can also signal quality or customer problems.
Red flags
- A growing share over 90 days
- Large credit notes issued after the balance sheet date
- No allowance for bad debts