![]() ![]() It is also a good idea to do a quick flux analysis comparing how the brackets’ amounts changed from the previous Aging Report, and investigate large variances. Therefore, it is essential to set reasonable date ranges. A large amount might be just a single day within a category of ‘181 to 365 days’, but we will treat it the same way as one almost at the next bracket of ‘1 to 2 years’, even though one is six months more overdue. This might indicate they are struggling with paying when it is merely due to their misaligned policies.Īlso, if we set up our brackets improperly, we might face the following issue. If a client has a sizeable outstanding due on Monday, but their payment day is Friday, they will end up in our report as delayed. It is crucial to remember that the Aging report can sometimes be misleading. ![]() Issues with the Accounts Receivable Aging Report The Receivables Aging helps the company to maintain a healthy cash flow budget and identify potential risks of lousy credit promptly. Such reports can be automated so that selling to a client is blocked within the system if they accumulate a large outstanding balance, and only continue again after the customer clears their balance. That way, management can re-evaluate payment and credit terms and stop business with customers causing cash flow problems. Another benefit comes from the data the report provides regarding the clients’ behavior over time. It allows companies to maintain an adequate level of interaction with their customers by sending them reminders and following-up whenever a client starts to delay their payments. There are many advantages to running a regular Accounts Receivable Aging Report. However, the report is still a great starting point, as it provides a clear indication of potentially problematic clients. This is not ideal, as past paid invoices should also be part of the review. This is especially helpful, as, in many companies, the compensations within the department have a direct link to their collectability levels. The company’s credit control department can also use the Aging Report to review the status of outstanding balances and adjust specific customers’ credit limits accordingly. Clients always running late with payments can be switched to prepayment only to mitigate the risk. The sales department should pay attention to the report as well, as it can help determine selling practices and credit terms. The Aging Analysis can also give a starting point to take action in collecting overdue balances Then they can assess whether to change the credit terms and policies for such customers or stop doing business with them altogether if they pose a significant risk. Such knowledge can be crucial for the cash flow management function of the company.Īging reports help the management to identify clients that are regularly late with their payments. It can suggest the firm is taking higher credit risk. If the collection of outstanding balances from customers slows down, this can warn that business is also slowing down. Businesses use the Accounts Receivable Aging to evaluate the financial health of the company’s client base. ![]()
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