A portion of a company’s customers that buy products or services from the company on credit may not be able to pay the company for various reasons. You can estimate your company’s uncollectible accounts to determine the amount of money that you expect your customers will not be able to pay using the percentage of receivables method. Using this method, which is also called aging of accounts receivable, you estimate the amount of your accounts receivable balance or money your customers owe, that will be uncollectible based on the amount of days certain accounts are past due.

Determine the total balance of your accounts receivable account from your accounting records. Also, determine from your records each portion of the total balance that is: not yet due, 1-to-30 days past due, 31-to-60 days past due, 61-to-90 days past due and more than 90 days past due. For example, assume your total accounts receivable balance is $100,000, of which $75,000, $10,000, $7,000, $5,000 and $3,000 is not yet due, 1 to 30 days past due, 31 to 60 days past due, 61 to 90 days past due and more than 90 days past due, respectively.

Estimate the percentage of each portion that you expect will be uncollectible. Estimate the smallest percentage of the portion that is not yet due and estimate larger percentages as the number of days past due increases. For example, assume the uncollectible percentage of each portion that is not yet due, 1-to-30 days past due, 31-to-60 days past due, 61-to-90 days past due and more than 90 days past due is 1 percent, 2 percent, 15 percent, 30 percent and 45 percent, respectively.

Multiply each percentage by each portion’s dollar amount to calculate the amount of each portion you estimate will be uncollectible. For example, multiply 0.01 by $75,000, 0.02 by $10,000, 0.15 by $7,000, 0.3 by $5,000 and 0.45 by $3,000. This equals $750, $200, $1,050, $1,500 and $1,350, respectively. This represents the amount of each portion you expect will be uncollectible.

Calculate the sum of the amounts of each portion you expect will be uncollectible to calculate the total amount of uncollectible accounts. For example, calculate the sum of $750, $200, $1,050, $1,500 and $1,350. This equals $4,850 in uncollectible accounts.