Cash flow problems caused by aged receivables are not simply a collections issue. They are a working capital issue, a financial reporting issue, and an operational planning issue. The CFO who treats aged receivables as an isolated credit management problem is misdiagnosing the impact.

The working capital impact

A receivable that ages beyond 90 days creates a cascade of financial effects that extend well beyond the unpaid invoice amount.

Direct cash impact. The obvious effect: cash that should be available for operations is locked in the debtor's bank account instead of yours. For a business with €10 million in annual revenue and a 5% aged receivable rate, that's €500,000 in working capital that is unavailable for investment, payroll, inventory, or debt service.

Provision impact. Under IFRS 9 and most national accounting standards, receivables beyond 90 days require specific impairment provisions. These provisions reduce reported earnings and can trigger covenant issues with lenders. A portfolio of €500,000 in 120+ day receivables might require a provision of €150,000-€250,000 — reducing reported profit by the same amount even before any actual write-off occurs.

Borrowing capacity impact. Many revolving credit facilities and invoice financing arrangements exclude receivables beyond 90 days from the borrowing base. Aged receivables don't just reduce cash — they reduce the business's ability to borrow against its receivables portfolio, creating a double constraint on working capital.

Opportunity cost. Cash locked in aged receivables cannot be deployed for growth: inventory purchases, capital investment, marketing, or acquisitions. The opportunity cost of aged receivables is often larger than the receivable amount itself, particularly for businesses in growth phases.

The recovery programme economics

Converting a portfolio of aged receivables from a static provision to an active recovery programme changes the financial picture materially.

Consider a portfolio of €500,000 in receivables aged 90-180 days. Under internal management, the expected recovery over six months is approximately €225,000 (45% recovery rate for internally managed aged claims). The remaining €275,000 is written off, reducing earnings.

Under professional recovery on a contingency basis, the expected recovery is approximately €325,000 (65% recovery rate for professionally managed claims at this age). After contingency fees (approximately €49,000 at 15%), the net recovery is €276,000 — an improvement of €51,000 over internal management.

But the cash flow impact exceeds the net recovery difference. The professional programme produces faster recovery — median resolution of 42 days versus 120+ days for internal management. This acceleration improves working capital availability by weeks or months, reduces provision requirements, and restores borrowing base eligibility.

The portfolio approach

The highest-impact approach to aged receivables is the portfolio submission: providing the recovery agency with the entire portfolio of non-performing receivables above a threshold amount (typically €10,000-€25,000). The agency triages the portfolio, pursues all viable claims simultaneously, and the portfolio effect produces aggregate returns that exceed the returns of selective submission.

The portfolio approach works because recovery agencies absorb the cost of claims that don't produce recovery. On a contingency basis, the creditor pays nothing for unsuccessful efforts. The successful recoveries subsidise the unsuccessful ones within the agency's business model — not within the creditor's.

The timing premium

Every month of delay reduces the expected recovery by 3-4 percentage points. A €500,000 portfolio submitted at 90 days has an expected net recovery of approximately €276,000. The same portfolio submitted at 180 days has an expected net recovery of approximately €195,000. The cost of three months' delay: €81,000 in lost recovery.

For CFOs managing cash flow constraints, the implication is clear: the cost of delaying professional engagement exceeds the cost of early engagement by a significant margin. The optimal strategy is early submission of all non-performing receivables above the threshold amount.

If aged receivables are constraining your working capital, the solution is calculable with your own data. Brief our team with your portfolio metrics for a cash flow impact projection.