What is an Aging Report?

Companies often face accounts receivable management challenges. 

An accounts receivable aging report is a vital tool that helps with this.

This article explains the purpose and function of an accounts receivable aging report. 

The example (shown later below) shows that aging reports are created and managed on an Excel spreadsheet. While many companies follow this method, accounting software (like accounts receivable software) can help you gain real-time aging visibility.

Aging Report Meaning

An AR aging report shows unpaid customer invoices. It groups the bills by how long they have been unpaid. It separates receivables into time periods, helping businesses prevent bad debt. 

How it Works

The aging report works by categorizing every outstanding payment into distinct aging periods. These periods are commonly 30 days, 60 days, or 90 days. The report shows overdue invoices and gives insight into accounts receivable management. 

Typically, the report organizes the receivable balance in a table, listing each customer account, a corresponding outstanding invoice, and an aging category. This format allows financial managers and stakeholders to identify overdue payments and take action.

What is an aging report used for?

1. Monitoring Cash Flow: The report helps track and manage cash flow problems by highlighting payments beyond due dates and potential liquidity issues.‍

2. Credit Management: Businesses can use the accounts receivable aging report to evaluate customer creditworthiness and adjust net terms.

3. Collections Strategy: This helps devise effective strategies for collecting overdue invoices by identifying delinquent accounts and prioritizing accounts receivable collections based on receivable aging.‍

4. Financial Planning: An AR aging report is essential for accurate financial planning, helping businesses conduct cash flow forecasting and manage working capital effectively.

Aging Report Importance

An accounts receivable aging report is essential in financial management. Several key factors contribute to its paramount importance:

• Timely Decision-Making: Companies can quickly identify and promote a healthy cash flow by organizing every late payment by age. ‍
• Risk Mitigation: It helps reduce bad debt risk by showing overdue accounts. 
• Improved Cash Flow Management: The report helps improve cash flow by ensuring collection effort efficiency.‍
• Enhanced Customer Relationships: Proactive accounts receivables management facilitates better customer relationships. 

Note: A general ledger provides transaction records, and an aging report shows a breakdown of outstanding receivables. 

Aging Schedule Benefits

• Visibility into Payment Trends: An aging schedule indicates clear payment patterns and doubtful account trends. 
• Efficient Resource Allocation: You can allocate resources more effectively by focusing on credit risk management efforts.‍
• Improved Financial Reporting: The report enhances financial reporting by reflecting any unpaid invoice. 
• Strategic Planning: Knowing the aging period helps companies develop strategic plans to address collection challenges and help with credit policy management.

Note: Bank reconciliation ensures that financial records align with bank statements.

AR Aging Report Components

An Accounts Receivable Aging Report typically includes the following components:

• Customer Information: All customer accounts are listed with necessary information like name, account number, and contact details.
• Invoice Details: The report details unpaid invoices, like invoice numbers, dates, and amounts.
• Aging Buckets: Receivables are sorted into groups based on how long they have been outstanding, such as 30, 60, or 90 days past due.
• Total Outstanding Balance: A summary of how much each customer owes is given.
• Percentage Breakdown: Reports show the percentage of dues in different age groups. This gives a cash spread overview.

Note: Credit memos impact an aging schedule since they reduce due amounts. 

Aging Schedule vs. Accounts Payable Aging Report

An AP Aging Report focuses on payables. It helps understand what needs to be paid soon and which can wait. This helps you use available cash effectively, avoid late fees, and get early payment discounts.

Both reports are essential for monitoring finances. The aging report helps get money into the company by tracking who hasn't paid, and the AP aging report helps plan spending and ensures timely bill payments. 

How to Create an Accounts Receivable Aging Report

Creating an Accounts Receivable Aging Report involves several steps:

1. Gather data: Collect updated information on customer accounts, outstanding invoices, and payment histories.
2. Categorize Receivables: Classify outstanding receivables into aging buckets based on payment terms (e.g., date ranges such as 0-30 days, 31-60 days, 61-90 days, 91+ days).
3. Calculate Total Outstanding Balances: Add the outstanding balances for each customer account and categorize them into aging periods.
4. Generate the Report: Use spreadsheet software or accounting tools to create a table representation, including customer information, invoice date, aging categories, and total outstanding.
5. Review and Analyze: Review the report to spot trends, high-risk and doubtful accounts, and identify collection challenges. Analyze the data to inform decision-making.
6. Distribute the Report: Share the accounts receivable aging report with relevant stakeholders like accounts receivable managers or collections executives.
7. Take Action: Develop and implement strategies based on the report's insights. This includes credit terms adjustment, starting collection efforts, or renegotiating payment schedules.

Note: Implementing a check box feature in an aging report streamlines outstanding invoice tracking and management.

Aging Report Example

In this example:

• "30 Days," "60 Days," "90 Days," and "Over 90 Days" columns represent the amounts that are overdue by the respective periods.
• The "Total Due" column shows the total amount outstanding for each customer.
• The "Total Outstanding" at the bottom summarizes the overdue payments.

FAQs

1) What is an aging report?

Companies use an aging report to track and prioritize overdue receivables. This helps improve collection efficiency and overall cash flow. 

2) How many days is an aging report?

Aging reports don't have a specified number of days. Companies commonly split the report into 0-30 days, 31-60 days, 61-90 days, and more than 90 days past due.

3) What is an insurance aging report?

An insurance aging report is a tool used by healthcare providers to track unpaid claims submitted to insurance companies that haven't been paid.

4) What is an example of aging analysis?

An example of aging analysis is when a company reviews its accounts receivable to see which customers owe money and for how long. It breaks these amounts into time frames, like 0-30 days, 31-60 days, and so on, up to over 90 days.