A/R reports help to understand the financial health of the company. It also determines the effectiveness of credit, collection functions, and identifies existing irregularities in the collection process. An A/R aging report segregates the invoices in 30-day buckets from the day the invoice was issued to the customer.
The list shows the outstanding invoices in date-ranges like:
1 to 30 days
31 to 60 days
61 to 90 days
91 days and above
These reports can also accommodate the contact information of your customers. This will help you drill down invoices issued at different intervals.
Example, John Doe of XYZ company’s A/R aging in his balance sheet will look like:
30 days overdue: $100
60 days overdue: $200
60+ days overdue: $700
The A/R aging report helps you understand the average age of your receivables. This will help you collect bills within a stipulated period and move the money to your bank account.
Tracking your AR aging report in a regular cadence (weekly or monthly) will help you identify concerns before they become a cash-flow crunch to your business
If a particular customer is paying late more often, you can evaluate your and conditions and bring about necessary changes.
It will also help you withhold product/service offerings until the amount is paid by the customer on the specific due date. This will ensure you don’t lose money by providing your service/product without payment.
Helps you analyze how your customers’ businesses work and aligning your invoice timeline with theirs will ensure you’re paid on time.
A/R aging schedule is a representation of accounts receivables separated using time brackets. The list contains the data of the receivables along with the customer, amounts they owe, bad debts, and the duration.
Let’s understand the aging schedule using an example. You’re a SaaS company and your accountant has set up an aging schedule to calculate the receivables and the total outstanding balance. These are the fields your aging report includes
This schedule gives you an idea of how much money is outstanding from your customers along with the duration.
The 1-30 days column shows you the money that is due from day 1 to 30 days.
31-60 days shows you the amounts that are due past 31 days till 60 days, and so on.
Based on your customer payment trends, you can calculate the average collection period. In other words, the average number of days it takes to collect your business sales. If the ratio goes up overtime then it is time to evaluate your payment terms. The average collection period can be calculated using the formula
Avg. Collection period = [(Days in period x Avg accounts receivable) / Net credit sales]
An accounts aging report helps you maintain a healthy and continuous cash-flow. It eliminates receivables problems at the nip and reduces the risks of bad debts. Having a clear understanding of the client persona (status of the amount outstanding, total amount, and the history of each client) will help you estimate how the money will flow into your business. Also using subscription billing software like Chargebee will help eliminate this problem by generating automated A/R aging reports as and when the invoice is sent and can help you set up automated follow-up mechanisms to send timely reminders as well