It allows companies to maintain an adequate level of interaction with their customers by sending them reminders and following-up whenever a client starts to delay their payments. There are many advantages to running a regular Accounts Receivable Aging Report.
However, the report is still a great starting point, as it provides a clear indication of potentially problematic clients. This is not ideal, as past paid invoices should also be part of the review. This is especially helpful, as, in many companies, the compensations within the department have a direct link to their collectability levels. The company’s credit control department can also use the Aging Report to review the status of outstanding balances and adjust specific customers’ credit limits accordingly. Clients always running late with payments can be switched to prepayment only to mitigate the risk. The sales department should pay attention to the report as well, as it can help determine selling practices and credit terms. The Aging Analysis can also give a starting point to take action in collecting overdue balances Then they can assess whether to change the credit terms and policies for such customers or stop doing business with them altogether if they pose a significant risk. Such knowledge can be crucial for the cash flow management function of the company.Īging reports help the management to identify clients that are regularly late with their payments.
It can suggest the firm is taking higher credit risk. If the collection of outstanding balances from customers slows down, this can warn that business is also slowing down. Businesses use the Accounts Receivable Aging to evaluate the financial health of the company’s client base.