Accounts receivable ageing report is a primary tool used by the company’s collection department to identify overdue invoices. It also helps the management to evaluate its credit and collection functions.
Accounts receivable ageing is a periodic tabular report which categorises its accounts receivables based on the period since the receivable stood outstanding. It helps the organisations to identify long outstanding dues and send follow-ups for the same.
The accounts receivable ageing report helps the organisation avoid the cash crunch by identifying potential credit risk parties on time. Nowadays, the accounting software automatically sends payment reminders as per the set time intervals. The ageing report is very important to maintain its financial health and evaluate if it is taking more credit risk as per its business potential.
The management of an organisation uses the accounts receivable ageing for the below purposes:
An ageing schedule is a table that draws relationships between outstanding invoices of a business with the respective due dates. It breaks the accounts receivable of the company into age categories. Usually, it breaks the accounts receivable into the following categories:
Accounts receivable ageing report tells a lot about the company’s business. It tells how good your collection practices are. Some of the uses of an account receivable ageing report are:
An accounts receivable ageing report can be applied to use by the company’s internal as well as external parties:
Also, if the company wants to factor in its accounts receivable, an ageing report must be submitted with the factoring agency. Also, the ageing report is useful when you take an overdraft facility from a bank. Banks review the ageing reports for fixing the periodic credit limit.
Accounts receivable aging report helps companies identify overdue invoices and evaluate credit functions. It helps in efficient collection practices, identifying credit risk parties, protecting from cash flow problems, creating allowances for bad debts. Ageing schedule categorizes invoices by due dates. Companies can use the report to improve collection processes, evaluate payment terms, decide on continuing business with defaulters. It's applicable for internal audit, external audit, factoring agencies, and banks for credit limit decisions.