If you manage accounts receivable or accounts payable at your company, then you know that an aging report is one of the most important reports in your arsenal. What is it? How do you use it? How can you interpret it? We’ll answer all these questions and more so that you can really understand what an A/R aging report means to your business, and how it can help you make decisions about which invoices to pay and which to postpone, in order to get the most out of your cash flow management efforts.
A/R Aging Report Explained
An A/R aging report is a powerful financial tool used by business owners or accountants that helps you see where your outstanding customer invoices are in terms of the time it will take for them to be paid. The information can be sorted in chronological order, which can help with forecasting cash flow because it reveals what period of time has the most money owed for outstanding invoices. It also allows you to know what amount of days an invoice will remain open before it’s paid off. For example, if someone owes you $1,000 from last month’s sales but they don’t pay until next month, then they have 30 days left before the invoice is aged off and no longer shown on your aging report.
Why is it important to review your A/R aging report?
Reviewing your aging report can help you see patterns or reasons for slow collections, as well as spot problems with your cash flow. If you spot a potential issue, you can fix it before it becomes a big problem. For example, if you notice that one of your customers has not made payments in the last 90 days and it’s nearing 120 days, contact them to remind them of their payment due date and request payment if they are overdue. You might also want to contact their bank directly if they have a line of credit with you because they may need to make an arrangement with the bank to pay off any outstanding balances.
How to use your A/R aging report?
If you’re in charge of a company’s financials, an A/R aging report is a valuable resource. An A/R report summarizes your company’s accounts receivables or invoices due in a given period. The most common period is one month. An A/R aging report includes these three key metrics: total, average, and percent of days past due. For example, if on September 1st there are 20 invoices that are more than 30 days overdue, then the total is 20; the average is 18; and the percentage of days past due for those 20 invoices equals 90%.
One major benefit of this type of report is that it helps keep track of who owes you money so that you can reach out to them before they start accruing late fees.
Making sense of data analysis on aging reports
If your business relies on invoicing its clients, there’s a good chance that you need an A/R aging report. This is a document that tracks the age of all of the invoices in your organization. By looking at this report, you can make sure that unpaid invoices are being collected by conducting phone calls or mailings to those customers who have not paid.