The importance of your company’s accounts receivable (AR) collections aging report as a diagnostic and assessment tool cannot be emphasized. This regular report provides a comprehensive picture of a company’s financial situation, customer status, and ability to pay. Accounts receivable reconciliation is another term for it.

Accounts receivable aging is a periodic report that categorizes a company’s accounts receivable based on the time an invoice has been overdue. It evaluates a company’s consumers’ financial health and dependability. Suppose a company’s receivables are being collected considerably more slowly than usual. In that case, this is a warning indicator that the business may be slowing down or that the company is taking more credit risk in its sales operations. The invoice aging report provides an overview of your invoices and where they are in the payment cycle. It categorizes unpaid invoices based on the days they have been past due.

The categories are usually:

Here’s a quick example of how a basic AR aging report looks:

The True value of AR Aging Reports

Given the cost of new capital, no business can afford to let their existing capital go to waste. However many businesses don’t realize how much cash is trapped on their own balance sheets.

An AR collections aging report gives valuable information about client payment habits and the performance of crediting/collection activities. Running AR collections regularly report (typically weekly or monthly) helps you understand what to expect from clients in terms of payments. It also detects cash flow concerns before they become a problem.

Cash flow issues are frequently related to collection policies or consumer behavior. Specific clients may be more likely to be delinquent than others. AR aging reports contain detailed data that can be used to take action.

A good example is refusing to provide services to clients after your payment grace period has expired. Regular collections reporting makes it easier to strike the proper balance between grace periods and service restrictions. It protects you from losing money by continously delivering services that will never be paid for.

An aging study also examines how your consumers’ businesses operate. This guarantees that your invoicing procedures are consistent with their accounts payable processes.

Here are some advantages of using accounts receivable aging reports:

Maintaining a healthy cash flow and identifying potentially bad credit risks to your firm might be challenging without accounts receivable aging report. Make sure you include the client information, collection status, total amount overdue, and financial history of each client when creating the accounts receivable aging report.

The process becomes easier when you utilize accounting software to modify client settings, such as sending automatic payment reminders for certain clients, defining the intervals between reminders, and including a personalized message.

Per D&B Quarterly Report for Benchmarking A/R Performance, the chart below shows the top 15 industries that paid more than 90 days late during Q2 2022 (April 1-June 30)

There are various strategies businesses can use to improve their A/R Aging Reports. This procedure typically leads to increased working capital. Most companies benefit from the following three strategies:

Every business requires an invoice-collecting mechanism, no matter how big or small. However, the organization must have the discipline to stick to it regularly.

A commercial credit report is the most straightforward approach to establishing whether a client will pay on time. The report shows you how your clients pay their other providers. This information can be used to determine their credit limit and whether or not they will pay you on time. Customers with poor credit should pay in advance or upon receipt of the product/service.

Businesses can also enhance their collections and working capital by providing early payment reductions. Clients receive a discount if they pay their invoices on time, as the term implies. For payment in 10 days or less, the usual discount is 2%, though these terms are negotiable. This tool is an excellent method to boost your cash flow. However, it comes with a cost.

Automation is well-known as a valuable tool for effective accounts receivable management. Because automated reporting services improve a company’s AR workflows and overall efficiency, several accounts receivable management software support them

Is your team devoting too much time to data collection and report generation? Automated solutions speed up the process by rapidly pulling and arranging data depending on predefined parameters in your software. It’s the most straightforward approach to spend less time writing reports and more time reviewing them.

With streamlined reporting, it’s much easier to manage cash flow accounting, behavior monitoring, and customized allowances for questionable accounts. Furthermore, automation removes some human factors from the equation, significantly minimizing errors.

Manual collecting is time-consuming and exhausting. It provides inefficient workflow, which frustrates your team. A poll found that more than 40% of workers spent at least a quarter of their workday on manual tasks such as email, data collection, and data entry. Use automation to eliminate non-essential chores, allowing teams to focus on more exciting, productive work.

The Accounts Receivable Aging Report displays which invoices are past due and which are going to become due. It is critical for your business since it will influence your cash flow if any of your clients are late paying their bills.

If you have past-due invoices, you may need to ask your clients for quicker payments, as long they take to pay, lesser are the chances of collection.

As a result, you must keep an eye on this report to take proper action. The aging report examines the number of times debtors (your customers) fail to pay their debts. The accounts receivable aging report is a standard accounting tool that can assist you in determining how successfully your company manages its cash flow.