Small business owners know that every cent matters.
That’s why it’s essential to keep an eye on outstanding payments and be sure you receive the money you’re due.
To that end, an accounts receivable aging report can be one of the most important documents that passes by your desk.
On it, you can see exactly where your clients and customers stand on their payment timelines. From this data, you’ll know whether or not it’s time to take steps to collect.
Today, we’re sharing how to leverage this report to help your company stay afloat.
Ready to learn more? Let’s get started!
What is an Accounts Receivable Aging Report?
An accounts receivable (A/R) aging report organizes and categorizes all of the amounts that all of your customers owe to your company.
If you keep this data in disparate records, scattered between paper and digital forms, it’s easy for missed payments to slip through the cracks. This is why it’s important to automate your accounting functions, if possible.
It’s called an “aging” report because you’re essentially signing an age to the unpaid amounts, ranking them by time-sensitive categories, including:
- Current: Due immediately
- 1 to 30 days: Due in the next 30 days
- 31 to 60 days: One month overdue
- 61 to 90 days: Two months overdue
- 91 days and beyond: More than two months overdue
As you sort these records by their due date, it’s easier to see which ones have been overdue for the longest period of time. These are the ones that should take priority and precedence over the others.
Most online accounting systems will include a feature that allows business owners to create a quick report with a few clicks.
Using Your A/R Receivable Report
Before you sit down to analyze your A/R receivable report, it’s important to have a strategy.
First, take a look at your largest outstanding amounts still owed.
Once you determine that all of these amounts are accurate and current, check to see how long they’ve been outstanding. Apply the 80/20 principle and go after your most serious offenders first. These would be the accounts that have the highest outstanding amounts that have been due for the longest period of time.
Leverage your collections management system to resolve these issues first. Then it’s time to move on to the next step.
From here, take a look at your accounts that have been due for the longest period of time. You have a few options concerning how to proceed at this point, including:
- Send the accounts to a collection agency
- File a lawsuit in small claims court
- Pursue A/R financing
- Continue to wait
Depending on the circumstance, any of these routes could be viable. For instance, you might know that one customer is dealing with a difficult family situation, so you decide to give the invoice a little longer to clear before taking it to court.
Your last step should be to use your collections system to contact any customers with an invoice that’s more than one month overdue.
Use Your A/R Report to Your Advantage
Any time an accounting tool can make a complex function, including accounts receivable processing, as simple as possible, it’s a win.
If you’re already operating an online accounting system with digital records, it especially makes sense to tap into an A/R aging report for a clearer look into your financial future.
Want more advice on how to finance your small business? Get in touch with us and let’s chat!