Managing credit risk on the balance sheet

Managing credit risk on the balance sheet means identifying which customers owe the money, how late those balances are and how much exposure sits with a few customers. Start with an aging export that reconciles to the ledger, then build a review list from the same reporting date.

This is an operating-company receivables review. Its output is evidence for collections and finance decisions, with accounting judgments retained by the controller.

Start with the receivables balance you can prove

Export open trade receivables at the reporting cutoff. Keep customer ID, invoice ID, due date, open amount, currency and entity. Bring the general-ledger trade receivables balance and allowance balance for the same cutoff. The balance sheet shows the closing position; this review explains the customers underneath it.

Keep trade balances distinct from employee loans, related-party balances and other receivables. Regulation S-X Rule 5-02 requires separate disclosure of these receivable categories and the allowance for doubtful accounts in applicable SEC financial statements. That distinction also gives an internal review a clear perimeter.

Use reporting-currency amounts approved by finance. Preserve source currency so an apparent increase can be separated from exchange-rate movement. Match unapplied cash and credit memos to the appropriate customer before interpreting exposure.

Turn invoice rows into an aging table

On a worksheet named Raw, use columns A through E for customer ID, invoice ID, due date, open amount and days past due. Put the reporting date in J1. In E2, fill down:

=IF(C2="","CHECK DUE DATE",MAX(0,$J$1-C2))

Resolve missing due dates before aggregating. A balance due on the reporting date belongs in the not-yet-overdue bucket. Use the fixed reporting date rather than TODAY(), so reopening the workbook does not change the result.

On a Review worksheet, put customer IDs in A2:A5. Columns B through E hold not due, days 1-30, days 31-60 and over 60. The first two formulas are:

=SUMIFS(Raw!$D$2:$D$5000,Raw!$A$2:$A$5000,$A2,Raw!$E$2:$E$5000,0)
=SUMIFS(Raw!$D$2:$D$5000,Raw!$A$2:$A$5000,$A2,Raw!$E$2:$E$5000,">=1",Raw!$E$2:$E$5000,"<=30")

For D2 and E2, use:

=SUMIFS(Raw!$D$2:$D$5000,Raw!$A$2:$A$5000,$A2,Raw!$E$2:$E$5000,">=31",Raw!$E$2:$E$5000,"<=60")
=SUMIFS(Raw!$D$2:$D$5000,Raw!$A$2:$A$5000,$A2,Raw!$E$2:$E$5000,">60")

Confirm the ranges include every export row.

Work the customer review

A US distributor's September 30, 2026 export produces the following balances, before the allowance. All amount columns are USD; percentages are rounded to one decimal place.

| Customer | Not due (USD) | 1-30 (USD) | 31-60 (USD) | Over 60 (USD) | Gross balance (USD) | Overdue (USD) | Balance share | |---|---:|---:|---:|---:|---:|---:|---:|---:| | Alder | 160,000 | 60,000 | 20,000 | 10,000 | 250,000 | 90,000 | 38.5% | | Beacon | 70,000 | 50,000 | 40,000 | 40,000 | 200,000 | 130,000 | 30.8% | | Cedar | 80,000 | 20,000 | 10,000 | 10,000 | 120,000 | 40,000 | 18.5% | | Delta | 70,000 | 10,000 | 0 | 0 | 80,000 | 10,000 | 12.3% | | Total | 380,000 | 140,000 | 70,000 | 60,000 | 650,000 | 270,000 | 100.0% |

In Review, calculate gross balance in F2, overdue in G2 and balance share in H2:

=SUM(B2:E2)
=SUM(C2:E2)
=F2/SUM($F$2:$F$5)

Fill down. For total shares, divide summed amounts rather than summing rounded percentages. Total overdue is 270,000 / 650,000 = 41.5%; over-60 exposure is 60,000 / 650,000 = 9.2%. Alder and Beacon together account for (250,000 + 200,000) / 650,000 = 69.2% of receivables.

Beacon deserves early attention: its overdue balance is 130,000 / 200,000 = 65.0% of its exposure. Alder is the largest exposure, so it still merits review even though less is overdue. Concentration and lateness answer different questions. A public-company credit-risk disclosure illustrates this distinction by discussing customer dispersion alongside changes in customer liquidity and anticipated losses.

Reconcile before assigning actions

The aging buckets must equal gross trade receivables. Then tie the allowance separately:

An allowance reduces carrying value; it does not represent a customer payment. A movement review should distinguish collections, new invoices, write-offs and allowance changes. Use flux analysis for that balance bridge and days sales outstanding for collection speed over a sales period.

Give Beacon's collections owner the oldest invoice references, dispute status, promised payment evidence and next review date. Give the credit manager the combined Alder and Beacon exposure. Escalate decisions through existing policy, and document the reason for any change in terms or limits. This connects the review to working capital without treating overdue balances as certain losses.

Where it goes wrong

• Aging from invoice date. A recently issued invoice with short terms may already be late; use its contractual due date.
• Combining customer IDs incorrectly. Separate accounts may belong to one parent group. Review both the invoice debtor and a verified group mapping.
• Mixing allowance and collections. A lower net balance can come from a larger allowance even when no cash arrived.
• Using lateness as a loss rate. Payment history, disputes and current customer evidence require separate assessment.

Review your own receivables in Covirage

Bring a sample of your own receivables export and balance report: Covirage maps the columns, and its tools compute and check customer exposure, aging totals and concentration. The external AI model explains the supplied results with every figure traced to its rows. Create a free Covirage account and use your own reporting cutoff for the comparison.

See Covirage for finance teams for the broader reporting context.