Cash flow. When attempting to understand the health of your business, there’s no better indicator. Understanding how much money is moving in and out of your business is key to knowing your true liquidity.
To get an accurate assessment, it’s important to make use of all the tools available to you. One of the most important is an aging report. In addition to giving you a clear look at the money your company is owed, it provides a quick picture of which customers are in good standing and which are becoming potentially problematic.
What Is An Aging Report?
An aging report is a critical resource that lets companies know the total amount of receivables owed by clients, and then breaks the information into segments based on age–such as 30-60 days. It provides critical insight into which accounts are delinquent and which are in good standing. As such, it is vital for a proper understanding of cash flow.
When the report is run, it will categorize accounts based on 30-day segments:
- Current–those who have been invoiced, but whose due date has not come
- 1-30–invoices that are overdue by one to thirty days
- 30-60–those that have gone thirty to sixty days past due
And why do they matter?
A 2020 report found a 32% increase in the number of businesses that struggled to pay their vendors due to late payments from customers.
That’s a startling number! Late payments to vendors can lead to fines and fees that will hurt your company. In extreme cases, it may even lead suppliers to terminate your account, causing a major disruption in your supply chain.
Beyond that, late payments also impact your organization’s balance sheet. Though accounts receivable are listed as an asset on the document, the funds are essentially locked up until a customer pays.
Aging reports also provide insights into potential issues within your accounts receivable and credit policies. They help you estimate bad debts and can help detect whether or not your credit policy is too lax. Conversely, if a large number of customers are paying late, it can indicate that your terms are too restrictive. In drastic cases, consistent delinquency may indicate that it is time to terminate a relationship with a customer.
The data can also facilitate sales training. For instance, if one specific sales representative has customers who regularly miss payments, it may indicate a need for additional coaching. Does the rep emphasize the importance of resolving invoices in a timely manner? Are they overselling customers? Or are the problems coming from within your AR department? Late payments may be due to a lack of communication with clients, restrictive payment methods, or can even indicate issues successfully delivering invoices.
In this sense, an aging report is a bit like a canary in a coal mine, tipping you off to potential problem areas with your cash flow so that you can go about fixing them.
Who should view the document?
While an AR aging report is primarily an accounting tool, it helps to share it with all stakeholders, from senior management to sales representatives. It’s important that they all understand what the report is, and how it can impact day-to-day operations.
Can Automation Make the Process Better?
While it is certainly possible to create AR aging reports using manual methods, it’s time-consuming and inefficient. An automation solution like YayPay makes it a simple process, giving you access to the data at the push of a button.
YayPay’s Business Intelligence module helps organizations quickly generate custom reports, leveraging hundreds of data elements that can be sorted by filters and presets. The information can be transformed into powerful charts and graphs. The solution even allows you to set up automatic delivery of the report to all necessary stakeholders, ensuring that all necessary parties are able to view it.
When it comes to the health of your business, understanding customer payment trends and their direct impact on your cash flow is going to drive smarter business decisions for growth.
For more information on how YayPay’s Business Intelligence module can help your team master its data and accelerate cash flow, view this brief video.
