What is the Importance of Accounts
Receivable Aging Reports For Finance
Teams?
Is your work desk overloaded with pending invoices?
Can’t prioritize which one to deal with first and which one is at risk?
It does not matter if you have a small business or you run a large corporate. You must know the urgency of addressing all your due payments. At times, you need to let a few things go and adopt a phased approach to recover all the dues from your customers.
Simultaneously, you cannot delay your pending payments too. We know this can create a tight situation. And this is the reason it becomes so important to review your aged receivable balance and get into action immediately.
Reasons for the Importance of Accounts Receivable Aging Reports
Aging reports include all those unpaid invoices as well as complete customer details, providing you with a fair overview of the real status of your receivables and cash flow.
Selling services for free does not bring in enough value. You must note down all those humble gestures you exhibit when you allow your clients to pay in installments or delay their payment till accepted on the due date.
Accepting late payments may disrupt your cash flows. A survey shows a late payment trend that can set into the business when your customers do not pay on time. In 2020, Atradius found that 32% of businesses failed to pay their suppliers on time because they did not receive their dues from customers.
Here, the accounts receivable aging report will work wonders. It will check the entire health of your accounts receivables and will provide you the report of your unpaid customer invoices. In just a single glance, you will be able to scrutinize the collections due and on priority.
How To Prepare An AR Aging Report
Firstly, you need open invoices information that can be organized on the aging schedule. There is an AR specialist available who can help you calculate AR aging for your business. An aging schedule is a data list of all the receivables from your customer organized into 30-day date ranges or aging categories.
The time brackets are categorized from anything like 1 to 30 days, 30 to 60 days, 60 to 90 days, and likewise.
You must add a column for current invoices that are not due yet. This can help you to become proactive in your collection process by sending reminders before the due date comes.
Thereafter, you can follow the below steps to get started:
- Step 1: Open invoices review
- Step 2: Collect invoices per customer. Visualize invoices issued at different intervals for the same customer
- Step 3: Classify open invoices into various time brackets as per your aging schedule
- Step 4: Finally, order the customer list
When you organize your late payment or nonpayment customer into various time brackets, you will easily find the oldest pending payments that must be collected first.
How Does Accounts Receivable Aging Report Function?
You can perform the entire aging report process with great efficiency and accuracy by automating them and instantly viewing all your due payments and related data. You can use accounts receivable aging reports in multiple ways apart from knowing the due payments. Let us find out the ways you can make better use of them:
Evaluate the Risk of Bad Debts
Some invoices that have crossed long past the due date are difficult to collect. Maybe you will have to perform a write-off. However, there could be many reasons the payment remains uncollectible, such as payers are not able to pay or other problems. And such outstanding invoices turn into bad debts and are shown as a loss that your business incurs.
Precisely, the longer is your timeline in collecting debts, the higher the chances of not getting the payment forever.
Mark Out Cash Flow Issues
If you wish to keep the sound financial health of your business, you must make sure your customers pay you on time. If the customer does not pay on time, it ends up piling up huge interests leading to lesser profits that you may have gotten if payment was received on time. Moreover, your years of business prowess and instincts must help you know when to wait for payment before it turns into a loss. With an aging report, you can identify such scenarios and remain aware of your company’s cash flow
Enhance Your Accounts Receivable Collection Practice
In instances when you do not receive the payment due to a customer following a different pay cycle, you need to realign your service delivery and revamp your accounts receivable management. With aging reports, you can analyze such scenarios and can assess your collections processes. Communicating your terms of payment is a good way to begin.
Analyze Your Credit Policies
With an aging report, you can evaluate the credit policy effectiveness and the pace of payment recovery. For an instance, if your payments are pending from a single customer, there are chances of having an unresolved and unidentified issue. In that case, you must know why the payments are delayed, following the changing of specific collection practices with that specific customer.
Revamp Inventory Management
Aging of accounts receivable reports can assist you to deal with an inventory and enables you to assess the right time when you can sell off with discounts and when can you stockpile your inventory. Moreover, you can make comparisons with various costs related to lost sales, warehousing, retail space, and much more. This enables you to plan for inventory control optimization leading to reduced expenditures.
Conclusion
Cost remains the core aspect in making the final decision when considering the aging report collections solution. CONFiANCE has accomplished this for several clients in the US with its accounts receivable services and by providing insightful aging reports. We do take diligent efforts to keep our clients aware of the increasing bad debts and help them find ways to come out of critical financial problems. We prepare intuitive aging reports that give you additional insights into your financial analytics and can improve your cash collection methodologies.
Visit our site www.confiancebizsol.com to find out more about our services or talk to our experts to resolve prolonged accounts receivable aging status and calculate AR aging today!