Reading your own aging report the way a lender reads it

Most controllers read the aging report as a collections worklist. Lenders read it as a risk document. The gap between those two readings is usually worth real money, and it is money you already earned.

Start with what the columns actually are. Current, 1-30, 31-60, 61-90, over 90 are not buckets of effort. They are buckets of doubt. Every dollar that moves right is a dollar the lender discounts, and a dollar your line of credit stops carrying.

A borrowing base takes your gross AR and subtracts. Anything past a stated age comes out, often 90 days. Foreign accounts, related parties, contra accounts and progress billings against unapproved work come out. Then a cross-age rule: if enough of a customer's balance is over 90, the entire customer balance is ineligible, current invoices included.

Take a shop with 8 million dollars of AR. Say 600 thousand sits over 90 days. Gross to eligible, that is 7.4 million before advance rate. Advance at 85 percent and you can borrow 6.29 million.

Now apply cross-aging. Suppose that 600 thousand of stale balance belongs to two customers who also carry 900 thousand in current invoices. Those current invoices go ineligible too. Eligible AR drops to 6.5 million, and at 85 percent your availability is 5.53 million.

Two slow customers just cost you 760 thousand dollars of borrowing capacity, and not one dollar of it was written off.

That is the reading a lender does every month. It is worth doing it yourself first.

Age tells you how long a dollar has been late. It does not tell you why. Sort a month of aged invoices by root cause and the list is usually short:

• billed late — the job shipped or the milestone passed weeks before the invoice went out
• billed wrong — PO number, ship-to, tax, unit price off the quote, and the customer sat on it silently
• disputed scope — work performed against a change order nobody countersigned
• retention — not late at all, but sitting in the same column as trouble
• genuinely slow payer — the only bucket that is actually a collections problem

Only the last one is collections. The first two are billing speed and billing accuracy, and they live in your own building.

Most of what looks like a receivables problem started upstream, on a day when someone in the plant knew the job was done and nobody in the office knew it yet.

Days sales outstanding on a rolling basis, then the dollars behind it. Take a 30 million dollar shop collecting in 75 days: 30M ÷ 365 × 75 is roughly 6.2 million dollars financing the cycle.

Pull five days out of that and the arithmetic is 30M ÷ 365 × 5, about 411 thousand dollars back on the balance sheet. Permanently, as long as the days stay out.

That is not a collections campaign. Five days is often the interval between shipment and invoice, or between an approved change order and a billed change order.

Speed to invoice is a cash lever, and it costs nothing but sequence.

One last habit. Pull the aging alongside your un-billed WIP and your open change order log. Anything sitting in un-billed is a receivable that has not started aging yet — it is aging in the plant instead, invisibly, where your lender gives you no credit for it at all.