Running an aging report is one of the easiest methods for analyzing the state of a company's accounts receivable. This is typically a standard report that can be run in almost any accounting software package. This aging report divides the age of the accounts receivable into various periods of time, which you can sometimes alter within the accounting software to match your billing terms.
The accounts receivable aging report is a listing of the customers making up your total accounts receivable balance. Most businesses prepare an accounts receivable aging report at the end of each month. Analyzing your accounts receivable aging report may help you identify potential cash flow problems.
The typical accounts receivable aging report consists of 6 columns:
- Column 1 lists the name of each customer with an accounts receivable balance.
- Column 2 lists the total amount due from the customers listed in Column 1.
- Column 3 is the "current column." Listed in this column are the amounts due from customers for sales made during the current month.
- Column 4 shows the unpaid amount due from customers for sales made in the previous month. These are the customers with accounts 1 to 30 days past due.
- Column 5 lists the amounts due from customers for sales made two months prior. These are customers with accounts 31 to 60 days past due.
- Column 6 lists the amount due from customers with accounts over 60 days past due.
The most common time buckets are from 0-30 days old, 31-60 days old, 61-90 days old, and then older than 90 days. Any invoices that are past the 30 day mark are worthy of raising a red flag, especially if they fall into the older than 90 bucket. If you run aging reports regularly, you can highlight vendors that perhaps you should negotiate different terms with, or require/allow different payment terms for given their ability to pay in a timely fashion - or not.
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