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Financial Management and Business Data Analytics · Receivable Management

Monitoring and Collection of Receivables: Ageing Schedule and ACP

Updated 10 October 2026 · Fact-checked

Monitoring receivables means checking how fast customers pay and acting on late payers. The main tools are the average collection period (Receivables ÷ Credit sales per day) and the ageing schedule, which groups dues by how long they are overdue. Compare results with credit terms, then follow set collection steps.

Understand Monitoring and Collection of Receivables

A firm that sells on credit does not get cash on the sale date. Until customers pay, money is locked in receivables. Granting credit is only half the job. You must also watch whether customers pay on time, or cash dries up and bad debts rise.

The simplest tool is the average collection period (ACP). It tells you how many days, on average, a rupee of credit sales stays unpaid. Compare it with the credit period you allow. If you allow 30 days and ACP is 45, customers are paying late on average.

ACP can hide problems, because it is an average. A few very old dues can sit behind many fresh ones. The ageing schedule fixes this. It lists outstanding receivables in age groups such as 0-30 days, 31-60 days, 61-90 days and above 90 days, with the amount and percentage in each. Older groups carry a higher risk of default, so you can see which customers need attention.

Monitoring leads to action through a collection policy. It is a planned set of steps: send a reminder just before or at the due date, follow up by letter, email or phone, send a firm notice, visit the customer, stop further supply, and finally take legal action or hand the debt to a collection agency. Each step costs more and may harm the relationship. A strict policy cuts bad debts and speeds collection but may lose sales. A lenient policy keeps customers but blocks funds. The finance manager balances the two.

Other control measures include a credit limit for each customer, a regular review of the ageing schedule, a provision for doubtful debts, and collection-effectiveness measures such as the bad debt ratio and the receivables turnover ratio.

Key rules to remember

Receivables turnover ratio
Receivables turnover = Net credit sales ÷ Average receivables
Use credit sales only. If only closing receivables are given, use them.
Average collection period (ACP)
ACP = (Receivables ÷ Net credit sales) × Number of days in the year
Equals Days ÷ Receivables turnover. Use 365 days unless the question says 360.
Average daily credit sales
Credit sales per day = Annual credit sales ÷ 365
Receivables = ACP × credit sales per day.
Bad debt ratio
Bad debt ratio = (Bad debts ÷ Credit sales) × 100
Compare with the target set in the credit policy.
Ageing percentage
% of age group = (Amount in group ÷ Total receivables) × 100
Used in the ageing schedule. The percentages should add up to 100.
Expected bad debts from ageing
Provision = Σ (Amount in each age group × Expected default %)
Default rates rise with age of the debt.

How to solve Monitoring and Collection of Receivables questions

Use this method for numerical and descriptive questions on monitoring and collection.

  1. 1Read what is asked: ACP, turnover, ageing analysis, provision, or a policy comment.
  2. 2Pick the right base. Use credit sales, not total sales, and note whether 360 or 365 days is to be used.
  3. 3Calculate the ratio or build the ageing table with amounts and percentages, and check that the totals match.
  4. 4Compare the result with the credit terms or the target given, for example ACP versus a 30-day term.
  5. 5Find the delay, such as ACP minus credit period, or the groups with a heavy share of old dues.
  6. 6Apply the default percentages to each group if a provision or expected loss is needed.
  7. 7Recommend action: reminders, calls, stopping supplies, legal steps, or a revised credit limit.
  8. 8Write a one-line conclusion stating whether receivables control is good or poor and why.

Quickest way: Ratio first, then compare with terms

When to use it: Use it in MCQs and short numerical parts where only ACP or receivables is required.

  1. Write credit sales per day = credit sales ÷ days.
  2. Receivables = ACP × credit sales per day, or ACP = receivables ÷ credit sales per day.
  3. For turnover, remember ACP = days ÷ turnover.
  4. For ageing, multiply each group by its percentage and add.
  5. Check that the answer is reasonable: ACP close to the credit period means good control.

Common mistakes in Monitoring and Collection of Receivables

  • Using total sales instead of credit sales in ACP

    Students pick the first sales figure given.

    Fix: Read the question for cash sales and deduct them. Receivables arise only from credit sales.

  • Mixing 360 and 365 days

    Students use a habit instead of reading the question.

    Fix: Use the number of days stated. If none is stated, use 365 and say so.

  • Ignoring the credit period when interpreting ACP

    Students stop after calculating a number.

    Fix: Always compare ACP with the allowed credit period and state the delay in days.

  • Ageing schedule percentages that do not total 100

    Percentages are worked on the wrong base, such as sales.

    Fix: Divide each group by total receivables and check the sum.

  • Applying one default rate to all receivables

    Students forget that older debts are riskier.

    Fix: Apply the separate rate given to each age group and add the results.

  • Listing collection steps without order or reason

    Students write all they remember.

    Fix: Write them from the mildest to the strictest step, and note the cost and customer-relation effect.

Worked examples

Example 1

Kaveri Textiles has annual sales of ₹90,00,000, of which 20% are cash sales. Receivables at the year end are ₹8,00,000. Its credit term is 30 days. Calculate the average collection period (365 days) and comment.

Show the solution
  1. Cash sales = 20% × ₹90,00,000 = ₹18,00,000.
  2. Credit sales = ₹90,00,000 − ₹18,00,000 = ₹72,00,000.
  3. Credit sales per day = ₹72,00,000 ÷ 365 = ₹19,726 (approx).
  4. ACP = ₹8,00,000 ÷ ₹19,726 = 40.56 days (approx 40.6 days).
  5. Compare: 40.6 days against the 30-day term gives a delay of about 10.6 days.

Answer: ACP is about 40.6 days, about 10.6 days beyond the 30-day term. Customers pay late on average, so the firm should tighten follow-up and review slow accounts.

Example 2

Receivables of Mehta Traders are ₹10,00,000, aged as: 0-30 days ₹5,00,000; 31-60 days ₹3,00,000; 61-90 days ₹1,50,000; above 90 days ₹50,000. Expected default rates are 1%, 3%, 10% and 30% respectively. Find the percentage of each group and the expected bad debts.

Show the solution
  1. Percentages: 5,00,000 ÷ 10,00,000 = 50%; 3,00,000 = 30%; 1,50,000 = 15%; 50,000 = 5%. Total = 100%.
  2. Expected default: 5,00,000 × 1% = ₹5,000.
  3. 3,00,000 × 3% = ₹9,000.
  4. 1,50,000 × 10% = ₹15,000.
  5. 50,000 × 30% = ₹15,000.
  6. Total = 5,000 + 9,000 + 15,000 + 15,000 = ₹44,000.

Answer: Shares are 50%, 30%, 15% and 5%. Expected bad debts are ₹44,000, which is 4.4% of receivables. The over-60-day dues are 20% of receivables but give ₹30,000 of the expected loss, so these accounts need urgent collection action.

Exam tips

  • In numericals, state the base (credit sales) and the days used. Step marks follow the working.
  • Always add a one or two line comment comparing the result with the credit terms. Many answers lose marks here.
  • For collection procedure questions, write the steps in order from reminder to legal action and mention the cost of each.
  • For MCQs, check whether the question gives average or closing receivables and whether it gives credit or total sales.
  • Draw the ageing schedule as a neat table with amount and percentage columns and a total line.

Practice questions from Receivable Management

Monitoring and Collection of Receivables in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Monitoring and Collection of Receivables: frequently asked questions

What is an ageing schedule of receivables?

It is a statement that groups outstanding receivables by how long they have been due, such as 0-30 or 31-60 days. It shows the amount and share in each group. Managers use it to spot slow payers and estimate bad debts.

How do you calculate the average collection period?

Divide receivables by net credit sales and multiply by the days in the year. Use 365 days unless the question says 360. Compare the answer with the credit period allowed.

Why is the ageing schedule better than ACP alone?

ACP is a single average and can hide a few very old dues. The ageing schedule shows exactly which age groups and customers are overdue. This helps target collection effort and set provisions.

What are the usual steps in a collection procedure?

Typically a reminder, then letters, calls or emails, a firm notice, personal visit, stop of supplies, and finally legal action or a collection agency. Stricter steps cost more and may damage the customer relationship.