Accounts Receivable Aging report- Overview, How to use?

Accounts Receivable Aging report- Overview, How to use?

First of all, let's understand the meaning of the term ACCOUNTS RECEIVABLE in accounting.

Accounts receivable (AR) is the money or payment that a company receives from its customers who have made purchases from their company through goods or services on credit.

Now, what does AGING mean in accounting?

AGING is a method which is generally used by investors or accountants to identify or assess any irregularities within the records of the company's accounts receivable’s. 

Aging Report Meaning

An aging report is also called accounts receivable aging report. It is a periodic report that displays the payments due for the company. 

In general, it is a record of overdue invoices measured for a specific period. It gives an overview of the financial health between the company and its customers.

AGING OF ACCOUNTS RECEIVABLE

Accounts receivable aging is a type of report that lists down the invoices of the customers which are unpaid, along with the credit memos that are not used. 

This kind of report is very helpful for a company because it gives the company precise information about all the overdue invoices in a single list. 

It can provide effectiveness and transparency to the company's work and to the credit functions. 

HOW TO PREPARE ACCOUNT RECEIVABLE (AR) AGING REPORT?

This report lists the outstanding balances of each of your company’s clients. (Outstanding balance is the balance you owe if you are in debt to any person or firm). 

In the method of its preparation, the invoice is then divided into columns as follows:

  • Name of your client 
  • Currently due invoice column
  • Due for 1 to 30 days
  • Due for 31 to 60 day
  • Due for 61 to 90 days
  • Due to more than 90 days
  • Total amount

Before you start to prepare the ACCOUNTS RECEIVABLE (AR) AGING REPORT, review all the invoices to get an idea of the outstanding balance of each of your clients. 

The second step includes sorting out your clients by any means, such as the department, invoice number or dates. The sorting would make the work easier and clearer.

Then comes the last step of listing down the outstanding balances of each of your respective clients.

ACCOUNTS RECEIVABLE (AR) AGING REPORT EXAMPLE:

 

Current

30 day

31-60 days

60-90 days

90+days

Total

A

$1000

0

0

$3000

0

$4000

B

$2000

$2000

$2000

0

0

$6000

C

0

0

0

0

0

0

Total

$3000

$2000

$2000

$3000

0

$10,000

How to Use the ACCOUNTS RECEIVABLE (AR) AGING REPORT

The ACCOUNTS RECEIVABLE AGING report can be proven helpful in various ways; it can tell you how smooth the flow of cash in your organization is and the effectiveness of the payments collected. 

This can bring transparency to your work as well as to the records of your company. 

You can use the ACCOUNTS RECEIVABLE AGING report for a variety of purposes. Some of them are mentioned below:

  1. You can organize your report in such a way that it provides you with data about who owes the most money to you. In this way, you can put specialized stress on that particular firm and keep the records for them in order to get your money back as soon as possible. These updated records will help you put the desired pressure on that particular firm.
  2. It can help you make a system which would provide the customers with rewards who make early payments or, in short, the people who pay you on time. This would bring transparency and motivate people to pay off loans or debts on time.
  3. This record can help you make periodic payment reminders for all the customers in an organized way, by sending the invoices to the customers via e-mail or by any other means.
  4. One of the most important uses of the ACCOUNTS RECEIVABLE AGING REPORT is to estimate the bad debts of its customers. Bad debts are generally the amount that a customer is unable to pay back when it exceeds the credit limit. This report would help you keep a separate record for such customers.
  5. This can be used to determine the AVERAGE COLLECTION PERIOD for your customers. By it, you can easily calculate the average collection period your customer takes to pay off the loans or the average period in which you get your receivables. This would help you calculate the estimated time in which you can expect to get your money back.
  6. It can also help you to revisit the credit policies for your organization. This would help you review the doubtful accounts that would pop up on your list.
  7. It can help you track the potential cash flow problems and would eliminate the problems of credit risks.
  8. It can strategize your process of collection of loans in the most accessible ways.

DEBTOR AGING REPORT:

It is a report that provides you with an overview of your customers who have already received the invoices but are yet to pay off the debts. 

Debtor aging report, being a part of AR aging report, it's like a tool that small businesses use to keep track of their ACCOUNTS RECEIVABLE’S.

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CONCLUSION

The accounts receivable aging report is important for organizations to keep a record of the customers who have their bills due to the company. 

This helps the company keep track of the unpaid allowances for customers and organizes it so that it becomes very easy to classify the customers on the basis of outstanding balances by means of different periods of time.

It maintains a healthy cash flow for a company and brings transparency to the receivables, automating the payment reminders with an auto sync feature.

FAQ’s Accounts Receivable Aging report

1. What does aging mean in accounting?

AGING is a method which is generally used by investors or accountants to identify or assess any irregularities within the records of the company's accounts receivable’s. 

2. What do you understand by the term accounts receivable’s?

Accounts receivable (AR) is the money or payment that a company receives from its customers who have made purchases from their company through goods or services on credit.

3. What is an aging report? Define

An aging report is also called accounts receivable aging report. It is a periodic report that displays the payments due for the company. In general, it is a record of overdue invoices measured for a specific period. It gives an overview of the financial health between the company and its customers.

4. HOW TO USE THE ACCOUNTS RECEIVABLE (AR) AGING REPORT?

The accounts receivable aging report can be used in a number of ways by the company to keep a record of the unpaid allowances of the customers for a particular period of time. This gives an overview regarding the outstanding balances of each of the customers and thus helps in an uninterrupted and healthy cash flow in the company. In-depth, it has been discussed in the document above.

Contact Us for Accounts Receivable Services, Account Reconciliation Services, Bookkeeping Services Outsource Accounting Services, Virtual CFO servicesESOP Services , GST Services  in Delhi, Noida, Gurgaon, and all across India: write to us at accounts@especia.co.in. Or Call On :(+91)-9711021268 +91-9310165114

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