Accounts Receivable Aging Reports: How to Gain Actionable Insights on Your Invoices

It’s one of the most useful reports for optimising a company’s finances. 

Overdue receivables can become a massive risk for companies, and they need to be addressed like any other threat: Define the problem, then take the appropriate action. An accounts receivable aging report can help you do just that. 

The aging report lets companies calculate how much is overdue and how late it is, with a level of detail that lets them diagnose exactly where the problems are happening. 

What is an aging report?

An aging report is a list of a company’s outstanding invoices, broken down by customer and how many days past due the invoice is. This is sometimes called an aging schedule.

A very basic report might look like the one below: 

If consulted regularly, an aging report provides several actionable insights into a company’s receivables.

Cash flow and bad debts

An aging report can deliver early warnings about problems with cash flow — for example, if there is a significant increase in the amount of overdue receivables. And that can influence important decisions about spending on inventory, capital expenditures and hiring. 

Companies can also use aging reports to quantify how much of their receivables are bad debts that will never be collected. Then they can adjust their overall reporting to reflect the true state of their finances.

A business needs accurate information on receivables because that’s one way that lenders and investors will judge a company. It could impact the company’s ability to access funding on the most affordable terms. Depending on the company’s size and industry, there might be reporting requirements, too, with penalties for inaccuracies.

Late-paying customers

An aging report will identify which customers are falling behind on their payments so the company can take action. This could be a sign those customers are experiencing financial problems or are unhappy with the company. Either way, action is required. 

Depending on the customer, the business might renegotiate payment terms to help the customer with repayment. That could preserve the client relationship and even make it stronger over the long term. 

But if that type of intervention fails, the company might send those invoices to collections. Or it could require the customer to pay cash up front. 

Credit and collection policies 

Companies can also use their aging reports to calculate how long, on average, it takes to receive payment. By tracking this metric over time, they can see if it’s taking longer to get paid. 

That could lead them to change their terms, offer discounts to encourage earlier payments or take a closer at the invoicing and collection process. The aging report might lead a company to discover inaccuracies in its bills or problems with client communication, such as bills going to the wrong department or contact. 

Consider segmenting the aging report by customer size or industry because different types of businesses may respond better to a tailored strategy. Bigger customers, for example, might want a discount while smaller customers just need reminders to pay their invoices. 

The bottom line about aging reports

An aging report arms companies with the information they need to make better decisions and address any problems facing their accounts receivable.

C2FO can help. With our platform, you can incentivise customers to pay their invoices faster, and the platform’s Invoice Central feature provides useful information about outstanding invoices from participating customers — automatically gathered in one place. Learn more about our suite of working capital solutions here.