What it means
A company may eventually collect 90% of its invoices yet still receive much of the cash late. A collection curve shows when a particular billing cohort (a fixed group of invoices, such as everything issued in March) actually pays.
That helps with cash planning and credit control. Choose the cohort by invoice issue month, service month or another fixed event, and keep the invoices in it, because moving unpaid invoices into a new cohort each month erases the original timing story.
Then pick the age clock: days since issue show overall collection speed, while days since due date show payment against agreed terms. A 30-day invoice that is unpaid at day 20 since issue is not late at all.
The curve differs from an ageing report, which is a snapshot of unpaid balances sorted by age and mixes invoices that started on different dates. The curve follows one group from billing to cash.
Both views are useful, but only the curve tells you how March invoices behaved compared with February invoices at the same age. Accuracy depends on mapping payments correctly.
Partial payments, unapplied cash and payments posted to the wrong invoice can distort a curve, so reconcile allocation before drawing conclusions. Treat credit notes separately from cash, because a credit extinguishes a receivable without bringing money in, and subtract any payments that are later reversed or refunded.
Compare cohorts at equal ages only. An invoice group from last month cannot yet have a 90-day point, so mark it as not yet observed instead of plotting it as zero.
Segment by customer type and payment terms too, because large enterprise invoices on 60-day terms should not be judged against small invoices due on receipt. Be careful with causes and forecasts.
A billing-system change, a holiday period or one large disputed invoice can bend a curve, and the shape shows what happened, not why. Mature cohorts give a useful historical pattern, but a new customer mix or changed terms can make it stale, so use ranges rather than a single predicted path.
In practice
Real-world examples.
Example
A consulting firm bills $100,000 in March and collects $60,000 by day 30 and $80,000 by day 60. Its finance team uses the curve to forecast April and May cash receipts. If the next cohort follows the same shape, they can plan payroll and supplier payments with more confidence.
Example
A wholesaler issues a $5,000 credit note against a damaged delivery. The curve shows the credit as an adjustment, not as a cash receipt. The cohort therefore still reconciles: cash collected, credits issued and the open balance add back to the original total.
Example
A software company reviews January invoices at day 90 but marks February's 90-day point as unavailable because that cohort is still too young. This avoids the false impression that February customers have stopped paying.
Formula
Calculation
Cumulative collected share at a given age = net cash applied by that age / original collectible cohort amount x 100%
Suppose March invoices total $100,000 and $60,000 of cash has been applied by day 30. The 30-day share is $60,000 / $100,000 x 100% = 60%. A further $20,000 is collected between day 31 and day 60, so cash applied by day 60 is $60,000 + $20,000 = $80,000 and the 60-day share is $80,000 / $100,000 x 100% = 80%. The remaining $20,000 is split between invoices still open, credit notes and amounts unlikely to be collected, and each should be shown separately.Case study
Seen in the real world.
In this entirely fictional example, Elm Services, an invented facilities company, notices a slower curve for invoices issued after a billing system change. The finance team finds that large customer bills are missing purchase order numbers, so the customers' payables teams cannot match and pay them.
Elm fixes the invoice handoff and compares later cohorts at equal age. It reconciles credits separately and checks that no single large customer is bending the shape.
The curve returns close to its earlier pattern within two billing cycles, although the team notes that other factors, such as a quieter holiday period, could also have helped. The finance lead adds a standing monthly review so the next slowdown is spotted in weeks, not quarters.
Watch out
Common mistakes.
- Mixing invoices from several issue months into a supposed fixed cohort, which hides the timing pattern.
- Counting credit notes and write-offs as collected cash, which overstates recovery.
- Showing unobserved later ages for a new cohort as zero collections instead of leaving them blank.
Questions
People also ask.
Is this the same as an ageing report?
No. An ageing report is a snapshot of unpaid balances, while a curve follows a fixed cohort over time.
Should a credit count as collection?
Not in a cash-collected curve; show it separately so the original cohort still reconciles to cash, adjustments and open balance.
Which start date should be used?
Either issue date or due date works, but state which one and keep it consistent.
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