In this blog, you'll learn:
- What AR aging reports are
- Why AR aging reports matter
- How to create aging reports, and
- How Versapay modernizes the AR aging analysis and reporting process
Overdue invoices can get out of control quickly. A surprising 22 out of 228 industry segments surveyed by Dun & Bradstreet reported more than a tenth of their aging dollars are more than 90 days past due.
Accounts receivable (AR) aging reports are highly valuable to AR professionals because they help them stay on top of those dollars and take the right collections actions when needed.
What is an accounts receivable aging report?
Accounts receivable aging reports help companies identify slow-paying customers. They show which accounts are late, for which invoices, and how long they've been overdue. But, these reports are valuable not just because they let you know who is behind on paying you. They also help you to take action by showing you which loyal customers might need different payment terms and which receivables might be in danger of becoming a doubtful debt.
AR aging vs. DSO
Days Sales Outstanding (DSO), on the other hand, is the average number of days it takes for your company to receive payment after a sale is made. A low DSO means your company is quick to collect payment while a high DSO may signal inefficiencies in your collections process. A long collection cycle can add to your costs and even reduce your margins.
What is an aging schedule?
An accounts receivable aging schedule is a table showing the amount of debt owed by each of your customers and how overdue it is. These reports will usually categorize unpaid invoices by 1-30 days, 31-60 days, 61-90 days, and over 90 days.
By maintaining this list of potential defaulters and customers still in the process of paying off debt, collections teams can ensure they’re communicating with customers in the most appropriate way and enforcing suitable payment policies.
Why do accounts receivable aging reports matter?
AR aging reports matter because they simplify the process of identifying late-paying customers and tactics that may help the business get paid faster.
1. Aging reports highlight cash flow
Aging reports allow you to quickly identify who is not paying their invoices on time as well as how much is owed by any given customer. Nothing is more frustrating for an AR manager, CFO, or business owner than selling goods or services but never receiving payment. That is why you must constantly be on top of the situation and keep a record of who owes you money—and who might be a credit risk—to preserve the health of your cash flow.
2. Aging reports inform credit policies
Running an aging report helps your collections staff determine which customers they need to prioritize contacting regarding any unpaid invoices. Your team may choose to prioritize their outreach based on dollar amounts or number of days overdue, which is made easier by having this data at your fingertips.
Regular aging analysis also helps AR managers stay on top of the effectiveness of their credit policies. If a customer is not paying their bills, you’ll definitely want to consider not giving them any additional credit. Also, you can use your aging schedules to determine if you need to change your policies, perhaps by offering a discount for early payment or charging fees for late payments.
3. Aging reports reveal doubtful debt
Doubtful debts are those late payments that you’re unlikely to ever recover. Because the older the receivable is, the less likely it is to be collected. Late payments affected 47% of the total value of all B2B credit sales in 2021, according to anAtradius survey. An aging report can be used to determine which receivables, if any, need to be written off or turned over to an outside collection agency. You can weed out the customers who are less likely to pay by giving them a final notice when they remain in your aging report for more than 90 days.
6 simple steps for creating an aging report
Here is a simplified guide to creating an AR aging report.
Make a list of all outstanding invoices broken down by customer in a spreadsheet.
Add columns for invoice date, invoice number, original dollar amount, and the unpaid balance.
Fill out each of the columns for each invoice that is unpaid, as of the current date.
Then add different aging columns, such as current, 1-30 days, 31-60, 61-90, 91-120, and over 120. You can make as many aging columns as you need to.
The outstanding amount for each invoice then needs to be copied into one of those columns depending on their age. You can work out step 5 manually, but you’ll save time by setting up an aging formula in Excel to do this for you.
Add subtotals for each customer and a grand total at the bottom.
Accounts receivable aging report sample in Excel
Here’s what an AR aging report in Excel can look like after it is manually created:
The Verspay difference
By now you can probably tell that creating an aging report in Excel is a very manual exercise. It can be one of the most onerous and tedious parts of traditional collections. There are better options today for reporting on AR aging, such as collaborative AR automation solutions with intelligent collection capabilities.
With Versapay’s AR Aging Dashboard (pictured above)—and its clear AR aging schedule—your team can get a real-time picture of the current status of receivables at a glance.
With Versapay you can also automate collections and dunning reminders and collaborate directly with your customers over the cloud to clear up any issues holding up payment.
AR managers and collections teams can modernize their AR aging analysis and reporting with:
Real-time communications and dispute management with late-paying customers
Central visibility of customer interactions, tracked over time and displayed as current
Timely prompts to help collections teams stay on task and focus on priority accounts.
Without accounts receivable aging reports to inform your collections efforts, payment terms, and debt management, you leave cash flow to chance. But that doesn’t mean you have to stick with traditional, manual methods of aging report preparation and aging analysis. Digitization and automation can vastly speed up this process, leaving you with more time for higher priority work.
Learn more about how you can streamline your AR processes with intelligent collections here.
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