AR Aging Buckets for Contractors: Why the Standard 30-60-90 Doesn't Fit Construction
Standard accounts receivable aging reports bucket receivables by days-past-due: 0-30, 31-60, 61-90, 91-120, 120+. The structure reflects general commercial practice — a receivable over 90 days is almost certainly a collection problem. Applied to construction, the structure is misleading. Construction receivables routinely age 120+ days through normal contract mechanisms, and treating them as problem receivables misunderstands the business.
A construction CFO needs an aging structure that separates types of receivables and ages each against its expected collection timeline. Retention held until substantial completion isn't a collection problem at 180 days aged; it's operating as designed. Trade receivables past the contract's payment terms by 30 days might be a meaningful issue worth follow-up.
A better structure for contractors separates receivables along two dimensions: the type of receivable and the days-past-expected-collection:
Receivable types that age differently
- Trade receivables — invoices per the contract's payment terms (typically net 30-45)
- Retention receivables — retention held per contract until substantial or final completion
- Unapproved change orders — contractor's claim for change-order work pending owner approval
- Disputed amounts — receivables the owner or GC has specifically challenged
- Final pay application — the closeout payment pending closeout document delivery
Within each type, normal aging looks different. Trade AR is expected to collect within the contract's payment terms; anything past 30 days past due is a question mark. Retention is expected to collect on substantial completion or final completion; aging against that milestone date rather than invoice date produces the right signal.
Trade AR (non-retention, non-disputed invoices) can use buckets similar to standard practice:
Trade AR aging buckets
- Current (within contract payment terms)
- 1-30 days past due (normal slow-pay, follow-up routine)
- 31-60 days past due (meaningful follow-up, escalation consideration)
- 61-90 days past due (concern, escalation to ownership or legal)
- 90+ days past due (serious collection issue, consider lien/bond claim, legal action)
On construction projects, trade AR aging tends to run newer than commercial AR — most pay applications collect within 45-60 days of submission, which is "30 days past due" on contracts with 30-day terms. That's a normal aging pattern for the industry, not a collection failure.
Retention receivables should be aged against their expected release date, not invoice date:
Retention AR aging buckets
- Not yet due — retention on active projects where substantial completion hasn't occurred yet
- Recently due — retention on projects that reached substantial completion within the last 30-60 days (normal processing window)
- 60-90 days past expected release (follow-up needed)
- 90-180 days past expected release (escalation warranted)
- 180+ days past expected release (significant problem; investigate thoroughly)
Retention that's not yet due shouldn't be a flag. Retention past the expected release date, without documented reason (punch-list issues, closeout document pending, etc.), is where problems start emerging. The aging structure should surface the latter without noise from the former.
Unapproved change orders that the contractor has billed for represent contingent receivables — money they'll collect if the owner approves. Aging them tracks how long approvals are taking and surfaces pending change orders that need active management:
Unapproved change order aging
- New (submitted within last 30 days) — in active review
- 31-60 days — normal review cycle, follow-up if approaching the outer edge
- 61-90 days — concerning; escalation to project executives warranted
- 90+ days — serious problem; consider claim escalation, mediation, or suit preparation
Unapproved change orders aged beyond normal review cycles are often the early signal of significant project trouble. When change orders aren't approving, the owner is either in financial distress, specifically disputing the work, or managing change orders as a leverage tactic. Any of these are worth attention before they compound.
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Disputed Amount Aging
Specifically disputed amounts deserve their own bucket. These are receivables the owner or GC has challenged — not just slow-paying, but actively rejecting. Aging them tracks how long disputes are unresolved:
Disputed AR aging
- Recently disputed (in active negotiation, less than 60 days) — normal dispute resolution
- 60-120 days — resolution should be approaching; escalation if it isn't
- 120-180 days — mediation or formal dispute resolution is appropriate
- 180+ days — litigation or arbitration is likely the next step; the dispute has outlasted informal resolution
From the two-dimensional structure, meaningful portfolio metrics emerge:
Portfolio AR metrics worth tracking
- Days Sales Outstanding (DSO) — computed by receivable type, not blended across types
- Retention as a percentage of aged receivables — tracks whether retention is releasing on schedule
- Disputed-to-total ratio — ratio of disputed receivables to total AR indicates dispute concentration
- Aging-concentration metrics — percentage of AR in each bucket, tracked over time
- Concentration by customer — what percentage of AR is with any single customer; high concentration is risk
These metrics should be reviewed monthly by finance leadership. Trends matter more than any single month's number — persistent growth in past-due buckets or disputed buckets signals broader issues; clean trends month after month signal healthy operations.
A construction CFO's dashboard should separate retention from trade AR and age each against its own timeline. Blending them produces numbers that look alarming but aren't, or conversely hide real problems behind healthy-looking retention balances.
Modern construction-specific accounting systems can typically generate these structured aging reports directly. For contractors on general-purpose AR systems, the reports may need to be built from export data in Excel or BI tools. Either way, the structure is worth the effort.
Tagging each receivable with its type (retention, trade, disputed, etc.) and expected collection date enables the aging calculations. This tagging should happen at billing time, not retrofitted. Integrating it into the pay application and retention workflow keeps it current.
Standard AR aging buckets mislead on construction receivables because they don't distinguish retention from trade AR, unapproved change orders from collected invoices, or disputed amounts from pending-normal amounts. A better structure segments receivables by type and ages each against its own expected collection timeline. Retention aged against its substantial completion date, trade AR aged against its payment terms, disputed amounts tracked in their own bucket — these produce an aging report that actually informs management decisions. Construction CFOs who rebuild their aging structure around their business reality make better collection decisions than those who try to force construction AR into generic bucket structures.
Written by
Sarah Blake
Head of Product
Former AP Manager at a $200M construction firm, now leads product at Covinly. Writes about what AP teams actually need from automation — beyond the marketing promises.
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