From keeping a track of invoices, to getting paid faster and identifying issues, find out why your business should get AR aging reports.
Did you know that an accounts receivable aging report (AR) is an important tracking mechanism for cash flow planning? Yes, it is true. An AR report is like a snapshot of which clients are in good standing and which have been irresponsible with their bills. An AR report can help you keep a tab on the pulse of your cash flow.
Getting an assessment of which clients are not paying their bills on time can alert you to other underlying issues and help you address them.
A late payment can be a warning sign for a client’s dissatisfaction with products/services, financial instability, a problem with the relationship, problems with invoicing or other such serious problems.
What does an AR aging report include?
Generally, an AR aging report would feature the total amount owned by a client and will follow up with a breakdown into aging categories like 30-60 days or 60-90 days. Although different accounting applications can be used to create an AR report, the categories of an AR report will always be in a 30-day segment. An AR report will usually include the following:
- Current – The invoices that have sent, but are not yet due
- 1-30 days – The number of invoices that are overdue by 1 to 30 days
- 31-60 days – The number of invoices that are overdue by more than one month, sometimes even up to two months
AR reports can show customer activity that is clumped by date. Detailed AR aging reports can also be created with specific invoice information that can alert you to clients who are habitually late or a client with an invoice that has been somehow missed. It is very important to align your AR report with your credit terms, so that you don’t end up with a skewed perception when you review your AR aging reports.
Why are customized AR aging reports useful?
Customized AR aging reports can offer you with better insight into the timing of your remittances. Further analysis can be done by taking into account the collector, amount, region and salesperson. Such customization in AR reports can help you spot internal vs. external issues in your accounts receivable procedure.
AR reports are important because they are the first step in helping you identify issues even before they start to become a problem. By keeping a track of AR aging reports on a weekly basis, you can identify concerns before they go out of control and start a cash flow crunch. AR aging reports are very critical when it comes to improving the performance of your receivables.
What are the insights that an AR report can give you?
AR aging reports can give you more than one insight, such as:
- Addressing external vs. internal issues – For instance, if there is one invoice from a customer that is left unpaid, it could be that your accounting department has misplaced the bill instead of the customer’s bookkeeper forgetting about it.
- Finding training opportunities – For example, if there is one salesperson on your sales team who has consistently had late-paying clients, you could consider stressing on the importance of on-time remittance. You can thereby find better training opportunities with an AR aging report.
- Spotting difficulties in regions – If you find one region that is facing constant problems through AR aging, you can get an overhaul of customer credit policies or come up with a stricter review process for dispensing credit.
- Finding out delinquency across-the-board – If your AR aging reports are showing above-average days that are delinquent, it can signal a systemic problem. Maybe you are out of step with the current industry invoice terms or maybe your clients are dissatisfied.
- Understanding the AR processes of clients – Sometimes an AR aging report can help you understand the accounts payable processes of your customers. Realigning your invoice timeline with your clients can help you get paid on time, while respecting their accounts payable processes.
Although AR aging reports are a part of the accounting department of your business, a company-wide dissemination and discussion will yield you improved results. Make sure that you involve all your stakeholders, senior management, sales department heads and even sales reps while reviewing AR reports. This all-important report should be made available to everyone who will affect the success of your company’s accounts receivable collections.
Do you want to avail AR aging report creation services? If yes, we at Outsource2india can help. Our team of experts can help you with calculating the allowance for bad debts, adjusting credit policies, identifying cash flow problems and keeping a track of all your invoices. With our AR aging reports, you can get paid faster. Find out more about how our AR aging report creation services can make a positive impact on your organization.
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