The account receivable aging report is a list of all invoices and the customer to whom they are owed says Aron Govil.
This report provides the following benefits:
Cash flow –
Businesses can anticipate their future cash flow by knowing how much money is expected at a given date. This report also helps businesses plan budgets, both short and long term.
Employee productivity –
It’s very helpful to have an idea of which invoices are soon to become due. Knowing this allows the company to properly assign employees’ time to accounts with payment due dates that are fast approaching. With this information at hand, your employees will be able to concentrate their efforts on those accounts where payment is soon expected. If you have certain staff members responsible for customer billing, inventory management or data entry, this knowledge provides them with the ability to focus more effectively on these tasks since they know which accounts are expected to come due.
Account receivable aging report –
A great use of the account receivable aging report is for forecasting cash flow. By knowing which accounts are soon to become due, you can estimate how much money your company will have at a given date. For example, if you know that 20% of your customer base is about to be billed, you can expect that this group will account for approximately 20% of the total cash flow in the following 30 days. This method does not pinpoint exact amounts, but it can give an approximation of future cash flows.
Cash Collection –
This report shows what invoices are coming due within 60 or 90 days and helps forecast whether your company has enough money on hand to pay bills says Aron Govil.
Management decision-making –
The account receivable aging report is an excellent tool for managers who are making decisions about raises, promotions or bonuses. For example, the manager of a sales team may use this report to gauge which employees have met their sales quotas and should receive a pay increase for meeting expectations.
Customer service –
This is another benefit of having this information readily available to your staff. Knowing which accounts are soon to be billed allows customer service representatives to call customers with due dates near to remind them that payment is expected at the end of the billing cycle. If you have certain staff members responsible for billing, inventory management or data entry, they will know which invoices are becoming past due so they can focus their efforts accordingly.
Managers can use the report to give raises, bonuses and promotions. For example, if a sales manager sees that by 60 days all of an employee’s commissions are receive, this may be indicative that further investment in that person is warrant explains Aron Govil. Another scenario could involve seeing which invoices are overdue 30 or 45 days and identifying customers who are behind on paying their bills so you will know when to start calling them about payment.
Accounts Receivable Turnover –
An account receivable aging report reveals your accounts receivables turnover ratio. This information tells you how many times per year your company receives its revenue from billing current customers. This statistic important because it provides insight into how hard your company needs. To work in order to generate its income.
Receivable Turnover Example –
Let’s say that during the month of December. You billed $10,000 and it took an average of 30 days for customers to pay their bills. This means that your ability to collect revenue on billing current clients is once per month. If making money were as simple as having a customer sign on the dotted line, everyone would be rich! This turnover ratio tells you how long you have to wait between each collection cycle. You can use this information when forecasting cash flow or creating budgets for future months.
Accounts receivable aging is also use by creditors who want to determine. If they should extend credit or not based on analysis of your balance sheet. And the amount of time it takes to collect from your customers. The faster you can collect on an invoice. The lower your risk is and the more credit they will be willing to give.
By using the account receivable aging report. You will have a better idea of when to expect money from current customers and how much says Aron Govil. Put this information to good use and it will improve the accuracy of your forecasts for future projections.