AR Aging Analysis and Collections Cadence

Purpose

Define the working AR aging review and collections cadence for a service business. Every dollar invoiced but not collected is a dollar the business funded for the customer at zero interest. The longer an invoice ages, the lower the probability of full collection, and the fall-off steepens as a receivable crosses 60, then 90, then 120 days past due. Treat that as the shape of a curve rather than a figure to quote: measure your own by running a year of collected invoices against the bucket each one sat in when the payment landed, because how steeply yours falls is a fact about your customer mix and your terms. A defined cadence prevents the slow drift where the bookkeeper "gets to it" and the owner discovers months later that the AR ledger has six-figure balances that may never come in.

Scope

Applies to:

• Residential and commercial trade-business invoicing
• Net-due and progress-billing customer terms
• One-time and recurring customer types

Excludes:

• Cash-on-completion residential work (no AR aging applies)
• Mechanics-lien-enforcement procedures (separate SOP)

Responsibilities

• Bookkeeper or AR clerk runs the cadence steps
• Office manager / collections owns the calls to past-due accounts
• Owner / GM approves write-offs and lien filings
• Sales / project manager owns customer relationship for in-progress disputes

The aging buckets

Standard AR aging:

Net terms (the time between invoice date and due date) vary by customer type:

• Residential: due on receipt (no AR aging) or net 7
• Small commercial: net 15 or net 30
• Large commercial / general contractor: net 30, net 45, or net 60
• Government: net 30 or net 45 plus payment processing time

The aging is calculated from the due date, not the invoice date. A net-30 invoice issued on the 1st of the month is "current" until the 31st and enters the 1-to-30 bucket on the 1st of the following month.

The weekly cadence

The AR aging review runs every week, on the same day. Tuesday or Wednesday morning is the standard slot: late enough that last week's payments have posted, early enough to take action this week.

Tuesday morning, every week (45 to 90 minutes)

Generate the AR aging report grouped by customer, sorted descending by balance. Note which customers crossed a bucket since last week. Verify current-bucket invoices were entered, sent, and acknowledged: the most common AR error is an invoice that was never received because the email address was wrong or the customer's AP requires portal upload (an invoicing process problem, not a collections problem).

For 1-to-30 past due: friendly reminder email (invoice number, amount, due date, payment link) and note the contact. This is the highest-leverage step; recovery rate is materially higher when touched within the first 30 days. Most customers forgot or the bill is in their AP queue.

For 31-to-60 past due: phone call to the AP contact (not email; email has not worked); confirm receipt, confirm in pay queue, ask for expected pay date; document the call. Uncovers slow-payers and disputes.

For 61-to-90 past due: escalating phone call to the customer's accountable manager; written letter (certified mail for higher balances); pull the job file and confirm whether lien rights were preserved at startup, because that is what decides which remedies exist at the next rung; hold new work until balance current.

For over-90 past due: final demand letter; lien filing where the preliminary notice was served at startup and the state filing window is still open, since a lien is not a remedy you can reach for on a job whose notice was missed; collections agency OR small-claims decision; write-off recommendation if uncollectible. Owner approves any write-off over the threshold; bookkeeper writes off below per credit policy.

The lien clock does not run on this ladder. Nothing in the buckets above sets a lien deadline, and no rung is a place to start preserving one. The preliminary notice runs from first furnishing of labor or materials, which makes it a job-startup act, and the filing window runs from last furnishing. Both are calendared per job from those dates, separately from this cadence, and on a job that reaches the later rungs they have usually run out months earlier. See the mechanics lien rights section below for the startup step itself.

Classify the debt before it goes to a third party. A balance owed by a homeowner for work on their own home is consumer debt. A balance owed by a business, a general contractor, or an owner acting commercially is not. The distinction decides which conduct rules apply to the collection itself: the federal Fair Debt Collection Practices Act binds third-party collectors on consumer debts rather than original creditors, but several states apply collection-conduct rules to original creditors on consumer debts too, which can reach your own shop's calls, letters and contact hours. Get the rule for the states you work in from your attorney before adopting a script or signing with an agency.

The monthly review

At month-end the AR aging summary is reviewed with the owner. Key metrics:

• Total AR (and trend vs prior 6 months)
• Days Sales Outstanding (DSO) = (Total AR divided by daily revenue from a trailing 90 day period). Compare to target.
• Aging composition (percentage of AR in each bucket; current vs past due)
• Top 10 customers by AR balance
• Top 10 invoices by age

Target DSO for residential cash-on-completion business is very low (most revenue collected at completion). Target DSO for commercial-mix businesses is typically in the 30 to 45 day range; over 60 indicates a collection process problem.

Mechanics lien rights

For trade businesses doing work on real property, mechanics lien rights are the leverage on commercial accounts. They are earned at the start of a job, not reached for at the end of one, which is why they sit in this section rather than on the ladder above.

The startup step. Every commercial job touching real property serves the preliminary notice at job startup, as a standard task on the job opening checklist alongside the signed contract and the certificate of insurance. It is cheap, routine, and sent on every job rather than only the ones that feel risky, because you do not know which job goes bad until the deadline has already passed.

The three clocks, each calendared per job from its own date. Preliminary notice, typically required within 20 to 45 days of first furnishing labor or materials (state-specific), to preserve lien rights. Lien filing, a window commonly 30 to 90 days after last furnishing. Enforcement, beginning within 90 days to 1 year of filing. Warranty callbacks and punch-list returns generally do not reset the furnishing date, so do not assume a late return buys more time. A business that skips the preliminary notice cannot file a lien later, whatever the balance or the merits. Consult the state-specific statute (California Civil Code 8400 series, Texas Property Code Chapter 53, Florida Statutes Chapter 713).

Customer disputes and write-offs

A disputed invoice does not age. Once a customer disputes in writing (or verbally and documented), the AR clerk transfers to "Disputed" status, sales or project manager takes ownership, and the dispute is resolved within 14 days. Resolution: if customer correct, credit memo and re-invoice; if not correct, provide documentation (signed scope, change order, completion photos) and re-confirm; compromise, partial credit memo plus commitment to immediate payment of the balance. Disputes aging past the resolution window go back to regular cadence with escalation.

An open dispute never goes to a third-party collector. While the account sits in Disputed status it is not placed with an agency and it is not filed on, whatever bucket it has drifted into. Placing a disputed balance is how a collectible invoice turns into a counterclaim, and on a consumer debt it puts the collector into a dispute they are obliged to handle rather than pursue. Clear the dispute first, in writing, then return the balance to the ladder at the rung its age earns.

A receivable that cannot be collected is written off (Debit Bad Debt Expense, Credit AR). This removes from the books but does not waive the legal claim. Triggers: bankruptcy with unsecured receivable; customer dissolved or out of business; diminishing returns on collection effort; approaching statute of limitations with no viable lien. Write-offs over an owner-set threshold require owner approval.

Records and retention

Retain all collection correspondence (emails, letters, lien filings, call notes) for at least the statute of limitations on the underlying contract (typically 4 to 6 years for an account receivable, state-dependent). For liened receivables, retain through the enforcement window plus any judgment collection period.

References

• Uniform Commercial Code Article 9 (secured transactions; mechanics lien is separate but related)
• State-specific mechanics lien statutes (California Civil Code 8400, Texas Property Code Chapter 53, Florida Statutes Chapter 713)
• 26 USC 166 - Bad Debts
• Fair Debt Collection Practices Act, 15 USC 1692 (binds third-party collectors on consumer debts; it does not directly bind an original creditor, but several states extend collection-conduct rules to original creditors, so confirm your own states)
• See related: Construction Lien Law Basics Reference; The Lien Rights That Protect You on a Commercial Job