Key Insight
A business with $200K in receivables and 35% of it 120+ days past due has a $200K asset on paper and roughly $130K in real working capital. AR aging is the difference.
Reading an Aging Report
A typical AR aging report has columns for each aging bucket:
| Customer | Total | Current | 31-60 | 61-90 | 91-120 | 120+ |
|---|---|---|---|---|---|---|
| ABC Corp | $45,000 | $45,000 | — | — | — | — |
| XYZ LLC | $28,000 | — | — | — | $10,000 | $18,000 |
ABC Corp is current — no concern. XYZ LLC has $28,000 outstanding, all of it 91+ days — a significant collection risk that should reduce the effective AR value.
What to Look For in Due Diligence
- Concentration in 90+ day buckets: Any customer with substantial 90+ day aging warrants a direct conversation about the status
- Customer overlap with concentration risk: If the 90-day aging is concentrated in the same customer who represents 30% of revenue, that's a compounded risk
- Historical aging patterns: One aging snapshot may not be representative. Sellers can accelerate collections before listing. Request aging snapshots from 6, 12, and 18 months prior.
- Write-off history: Ask for bad debt write-offs over the last 3 years. High write-offs signal systemic collection problems.
Applying an Aging Discount
When AR transfers with the business, buyers typically apply a discount schedule:
- 0-30 days: 100% value (par)
- 31-60 days: 95-98%
- 61-90 days: 85-90%
- 91-120 days: 60-70%
- 120+: 20-40% (or case-by-case negotiation)
Free Prescore — No Credit Card Required
Apply this to a real deal in minutes. No account, no commitment.