How to reduce AR aging: Turn aging reports into action
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Reviewed and Edited by Unpaid invoices leave your business with little working capital. According to Atradius’s 2025 Payment Practices Barometer, 43% of credit-based B2B sales in the U.S. were overdue.
Knowing which customers owe you money doesn’t pay those invoices. You should know which accounts to prioritize, when to follow up, and how to address payment delays.
In this article, we’ll explore how to reduce AR aging by turning aging reports into collection actions, prioritizing overdue accounts, automating follow-ups, and tracking improvements over time.
What does it mean to reduce AR aging?
Reducing AR aging means collecting overdue invoices sooner and avoiding falling into older categories. For example, imagine a small business has an invoice that’s 45 days past due. Now, getting that invoice paid before the 60-day mark reduces AR aging.
As long as invoices remain overdue, they become difficult to collect. This can impact cash flow and affect the service that you’re committed to offering the clients.
You may know that an AR aging report shows invoices grouped under the 60/90-day category. But not every invoice needs equal attention and response. One customer may be waiting for a corrected invoice, while another may have missed payment commitments. Knowing the difference helps you take the next action.
How to reduce AR aging: actions for every aging bucket
Start with the number of days an invoice is past due. This gives a starting point for approaching unpaid invoices, from initial payment reminders to escalation or recovery efforts. Here’s how to handle invoices across four common aging buckets:
1-30 days past due: resolve early payment delays
An invoice within this bucket doesn’t indicate that a customer is unwilling to pay. The invoice may have reached the wrong contact, a purchase order may be missing, or the customer’s accounts payable team may still be processing it.
Start with a polite reminder that includes the invoice number, outstanding amount, original due date, and payment instructions. Ask the customer whether they are facing any technical issues preventing payment on their end.
Chances are that the customer may provide a tentative payment date. Record it and schedule a follow-up if the payment doesn’t arrive. This prevents the invoice from slipping into the next aging bucket without further action.
31-60 days past due: address payment blockers
Sending more messages may not help recover unpaid invoices despite initial reminders. At this stage, the priority should be finding out what’s exactly holding up payment.
Reach out directly to the customer’s accounts payable team using the appropriate communication channel. Following B2B collections follow-up best practices can help you choose between emails, phone calls, and SMS based on the situation.
Once you’ve identified the blocker, agree on the specific next step. If the customer needs a corrected invoice, assign someone to get it done. If the payment is waiting for approval, confirm when that approval is expected and follow up if the deadline passes.
61-90 days past due: escalate unresolved accounts
Review the efforts that you’ve made so far. Have previous reminders/attempts to resolve payment issues gone unanswered? Has the customer repeatedly missed payments? Findings from your review determine whether the specific account needs escalation.
If it needs escalation, involve the decision-maker, such as the customer’s finance manager or your AR manager. Share a record of previous reminders across communication channels (emails, SMS, etc.) so that the next conversation focuses on reaching a solution.
The escalation should result in a clear next step. It can be an agreed payment date or a documented payment arrangement if the customer cannot pay in full immediately.
91+ days past due: evaluate recovery options
If an invoice remains unpaid beyond 90 days, assess whether further collection efforts are likely to recover the outstanding amount. Review the customer’s responses to earlier collection attempts.
This will help you evaluate formal recovery options, including sending a formal demand letter, bringing in a third-party collection agency, or pursuing legal action.
When evaluating these options, consider both recovery costs and how to handle overdue invoices without losing clients.
Automating AR collections across aging buckets
Having a collection strategy is one thing, while executing it consistently across aging buckets is another. As invoice volumes pile up, monitoring manual follow-ups, customer responses, and promised payment dates becomes difficult for AR teams.
Establishing a repeatable workflow puts your collection strategy into practice. Here’s how you can do that:
You needn’t execute every step of this workflow manually. AR automation tools help schedule payment reminders, manage follow-up sequences, and monitor customer responses. With AI in accounts receivable collections, you can automate customer outreach across several communication channels. However, sensitive escalations and recovery decisions should remain under human oversight.
Even when you decide to automate, start with repetitive tasks such as payment reminders and follow-up scheduling. Also, you should define when an account should be flagged for human intervention. Businesses allow human intervention only when the customer raises a dispute or misses a ‘promised’ payment date. Review this time and again before extending automation to more collection activities.
Are your collection efforts reducing AR aging?
Sending more payment reminders doesn’t necessarily improve the accounts receivable process. Evaluate the changes in overdue balances and monitor relevant accounts receivable KPIs. Focus on three indicators:
- Balances in older aging buckets: Check whether overdue balances in 61–90 and 90+ days past-due categories are decreasing. The actual reason for reductions can be anything: payments, adjustments, or write-offs. Identify your exact reason!
- Days Sales Outstanding (DSO): Monitoring this indicates whether the average collection period is shortening. DSO provides a broader view of collection efficiency alongside your aging reports.
- Movement between aging buckets: Monitor the number of invoices that move into later buckets instead of being paid or resolved.
When overdue balances decrease, fewer invoices move into later buckets and collection times shorten. These are encouraging signs that your collection efforts are working.
Final thoughts
If you’re exploring how to reduce AR aging, turning aging reports into actionable items holds the key. This means addressing payment blockers, escalating unresolved accounts, and evaluating recovery options. A consistent, automated follow-up workflow helps teams execute these actions.
Once invoices pile up, maintaining that consistency is a challenge. Squirrels AI’s AR Collections Specialist automates routine payment reminders and collection follow-ups across communication channels such as phone calls, emails, and SMS. This gives AR and finance teams more time to focus on accounts that need personal attention.
Ready to reduce AR aging? Book a demo and explore smarter ways to manage overdue invoices.
Frequently Asked Questions (FAQs)
Yes. An unapplied payment refers to a customer payment that was not matched to the appropriate invoice (but the business has received the funds). As a result, the invoice may still appear overdue. Matching the payments with appropriate invoices help ensure aging reports reflect the actual outstanding balances.
No. A partial payment reduces the overdue invoice balance but doesn’t reset its aging period. The unpaid amount continues aging from the original due date unless the payment terms are formally revised.
Yes, Squirrels AI’s AR Collections Specialist can do that. When the customer promises a specific date and misses the deadline, you can configure an outreach sequence to initiate further reminders.
Yes. Squirrels AI integrates with existing accounting, ERP, and CRM systems. Sync overdue invoice data from supported software or upload an AR aging list to get started.
Yes. You can customize email, SMS, and phone call sequences for overdue accounts, including when reminders should be sent and how messaging should change. Your AR team can review customer responses and handle accounts requiring further attention.