If you offer credit to customers at your small business, you have accounts receivable (AR). Sometimes customers pay on time, while other times they do not. Aging of accounts receivable comes into play when a customer has a past due invoice. Keep reading to learn all about aging of AR and how it can help your business.
Aging of accounts receivable
Before you go down the rabbit hole of aging of accounts receivable, you have to know what accounts receivable is. Accounts receivable is any money owed to your business from a sale on credit. The entries in your AR are called receivables. The receivables in your books represent outstanding invoices. You have accounts receivables if you extend credit to customers (e.g., you invoice a customer and they pay you at a later date).
The “aging” of accounts receivable refers to the number of days an invoice is past due. Businesses can use aging of accounts receivable to track and collect overdue bills.
Prepare an aging of accounts receivable report to see the age of outstanding invoices. Generally, the report is broken up into a few intervals:
Current (due immediately) 1 – 30 days 31 – 60 days 61 – 90 days 91+ days
Intervals, also referred to as an aging schedule, vary depending on your preference or the accounting platform you use. Either way, the past due intervals show you how much is overdue, how long it has been an outstanding balance, and which accounts need immediate attention (e.g., contact the customer for payment).
How to prepare an accounts receivable aging report
To prepare an accounts receivable aging report, you need to have the customer’s name, outstanding balance amount, and aging schedules.
An AR aging report can be broken down into the following categories:
Customer name Total balance for each customer Current amount Days past due (e.g., 1 – 30 days) Totals for each column
So, what should your aging of AR look like? Good question. Check out this accounts receivable aging report example to see the general layout:
Customer Name Total Balance Current 1 – 30 days 31 – 60 days 61 – 90 days 90+ days Customer 1 $2,200 $300 $1,900 $0 $0 $0 Customer 2 $0 $0 $0 $0 $0 $0 Customer 3 $1,000 $0 $0 $1,000 $0 $0 Customer 4 $500 $500 $0 $0 $0 $0 Totals $3,700 $800 $1,900 $1,000 $0 $0
If you manually update your books, keep track of your aging accounts receivables regularly (e.g., at least monthly). That way, you stay up-to-date on how much each customer owes you and how overdue their payments are.
To simplify the aging of accounts receivable reporting process, consider investing in accounting software. Software can organize your accounts receivable and help you stay on top of your past due customer invoices.
How to use an AR aging report
When looking at your aging report, look to see who owes your business the most amount of money. Are the amounts current? Or, have these bills been outstanding for 90 days or more? Focus on collecting the highest payments. Look to see how long bills have been overdue before taking any action.
Come up with a plan on how you will reach out to customers about their past due amount. For example, you could send anContinue reading