Receivables that age past 60 days have a measurable probability of becoming bad debts. Active management of the AR aging report, supported by a systematic collections process, recovers cash that is otherwise lost to delay or default.
What you'll learn
→ Reading the aging report → The collections cadence → Customer credit policies → Provisioning and write-offsReading the aging report
AR aging buckets receivables by how overdue they are: current (not yet due), 1-30 days overdue, 31-60, 61-90, 91+. The report should be run weekly and circulated to the AR team and finance leadership. The 91+ bucket is the danger zone.
Calculate weighted-average DSO each month: total receivables divided by daily sales. Compare to industry benchmark. UAE B2B service businesses typically run 45-75 days DSO. Higher means more cash trapped; lower is operational excellence.
The collections cadence
Day 0 (invoice issue): automated invoice with payment instructions. Day 7 (one week before due): polite reminder. Day +1 (one day overdue): courtesy follow-up. Day +14: phone call from the assigned collector. Day +30: escalation to senior management with statement of account.
Day +60: credit hold on new orders. Day +90: legal letter or referral to collection agency. Day +120: provision for doubtful debt. The cadence sounds aggressive but customers respond to consistency, they pay vendors who chase first.
Customer credit policies
Set credit limits before opening accounts. New customers: ask for trade references, run a credit check (Etihad Credit Bureau in the UAE), and start with limited credit. Long-standing customers can earn higher limits over time.
Document the policy and apply it consistently. Sales should know they cannot open a new customer with AED 200,000 of credit without finance approval. Sales should know they cannot ship on overdue accounts. Unclear policy creates exceptions and exceptions become standard practice.
Provisioning and write-offs
When a debt becomes unlikely to be recovered (typically 90-120 days overdue with no payment plan), provision it, debit bad debt expense, credit doubtful debt provision. Continue collection efforts. If the debt is finally written off, debit the provision, credit the receivable.
For VAT purposes, you can claim back output VAT paid on bad debts more than 6 months overdue and written off. File the claim in the next VAT return. Keep documentation of write-off justification, the FTA may request it during VAT audits.
This guide is general information, not professional advice. For situations that involve specific facts, talk to your accountant, or hire one of ours from the marketplace.