Get your money! Using your Accounts Receivable Aging Report

Get your money! Using your Accounts Receivable Aging Report

No one appreciates it when Todd says, “Thanks for dinner man! I’ll Venmo you!” and then takes three weeks to send the payment. Nearly a month later the steak + beer emojis pop up on your phone, and now there’s $60 in your account you’d almost forgotten about. (Honestly, maybe you should start charging Todd some interest.)    

What’s even worse? The friend that is notorious for the delayed payback. It’s so bad that at this point, if you lend him money or spot his next meal you know you might not be seeing that money for a while—if ever. Nobody likes sending the awkward “Matt requests $150 for camping supplies” message two months later.   

Whatever the state of your personal finances, you know your small business can’t run like that. Luckily, your Account Receivable Aging Report is your business’s way of keeping track of which “friends” haven’t paid you back yet. Not only that, it helps you track which ones will, and which ones you might have to hound to get the cash from their hands.   

So let’s review what exactly your accounts receivable aging report is, and what it means for you.    

What is an Accounts Receivable Aging Report?    

An accounts receivable aging report is a record that shows the unpaid invoice balances from customers, along with the duration in which they’ve been outstanding. Basically: how much do they owe you, and how long haven’t they paid up? 

The report breaks down these receivables into different categories based on the number of days they’ve been overdue. The aging report is used to collect debt and establish credit.    

The standard categories on your report:    

-        Current: Due immediately 

-       1-30 days: Due within 30 days 

-       31-60 days: One month overdue 

-       61-90 days: Two months overdue 

-       91 days and over: More than two months overdue   

Accounts receivable aging acts as a fantastic tool to analyze the financial health of your customers, and in turn, the financial health of your small business.    

For Example: Let’s say you own an electrical company. In reviewing your monthly report, you realize that a company called BrewHouse & Co. is 4 months overdue in their payments. You terms with this customer states they have 60 days to pay their invoice, so they are now a couple months behind in the payments. Based on their payment history, you can analyze whether or not BrewHouse & Co. is a significant risk to your company moving forward, and determine how to handle them.    

Why is this important? Well, simply put, it’s risky to extend credit terms to customers who simply aren’t going to pay.  

 3 ways to use your accounts receivable aging report:    

  1. Adjust credit policies.    

Let’s say the bulk of your outstanding payments result from one or two overdue clients on your accounts receivable. Your business can take necessary steps to make sure that the customers’ account is collected ASAP.    

If you have a large number of overdue clients, it’s probably a sign that you should tighten up on credit policies towards existing and future clients.    

  1. Identify cash flow issues.   

The aging schedule helps illuminate changes and problems within your accounts receivable.  

If there are clients that are continuously late, or refusing to pay their bills on time, you can learn to account for these problems beforehand and avoid cash-flow problems. 

People are often unpredictable. Don’t let your cash flow become dependent on the arbitrary patterns of your clients.    

  1. Estimate allowances for doubtful debt.    

By estimating the amount of uncollected debts, you are also able to approximate debts that may not be collected at all.    

Allowance for doubtful accounts is essential in keeping an accurate record of incoming cash flow.   

To be frank, there are unfortunately clients that may never pay you. (We would love to have more faith in humanity, but here we are.) The fact of the matter is that these clients exist, and it is crucial to spot bad patterns before they worsen by keeping tabs on who is likely to pay you on time, late, or not at all.    

Use the accounts receivable aging report to help you estimate allowances for doubtful debt. If you are due a total of $100,000, you may estimate based on your reports that $5,000 will be doubtful debt, or debt that will not be paid to you. At that point, you can swallow the loss and move on. Hey, at least you know!   

Benefits of the accounts receivable aging report:   

An appropriately used aging report primarily benefits your small business itself. For one, the report acts as a calendar so that you can regularly contact clients, letting them know you’re on top of your billing.   

You aren’t a charity, nor are you here to loan money to anyone you provide services for. Aging reports allow you to stay on top of your clients and sever ties with anyone who may be affecting your credit. With the predictive insights of an aging report, you can stop providing services or goods before they permanently stop paying you.    

Besides being a huge asset to your small business in understanding what companies will pay you and when, it is also a tool managers and analysts use to assess your company’s financial performance. 

Without an Accounts Receivable Aging Report, your business could suffer.    

Without keeping track of accounts receivable, you may lose out on cash flow and rack up detrimental debt. Depending on how much money you are due, you could be forced to take out loans to stay stable because of unpaid accounts—and then you owe interest on those loans.    

Every day that a payment is late, your business is directly affected. An accounts receivable aging report helps you track and mitigate the effects of outstanding payments.   

Know Your Numbers Accounting knows the financial obstacles that small businesses face and specializes in keeping your books straight. Having issues keeping tabs on your accounts receivable aging reports? We’d love to help. Schedule a consultation today. 

Ever had a tough client who refused to pay? How did you manage them? Let us know in the comments! 

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