Why is Important to Keep Track of Your Accounts Receivable?
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Aging Monitoring to Decrease Payment Delays
Accounts receivable, your customer’s unpaid invoices, are a short-term asset on your company’s balance sheet. At any time, you should know exactly what that line item comprises. It is also convertible into cash upon collection and, therefore, is important to cash flow and your ability to fund operations adequately.
Many customers pay within specified terms, i.e., within 30 days, but unfortunately, some do not, resulting in an increasing accounts receivable balance and potential cash flow management problems. While an increase in A/R is favorable due to increased revenue, it is not due to increased payment delays from customers. This is one reason that accounts receivable should be monitored closely.
The aging report is one of the most valuable reports to help with accounts receivable management. This report typically lists each customer with its corresponding receivable balance allocated horizontally into age categories. Typical ranges are 0 – 30 days, 31 – 60 days, etc. An aging report allows you to see which customers are becoming delinquent, how delinquent they are, and how many dollars.
Companies often have A/R management policies that specify which actions are to be taken for each degree of the lateness of payment. Again, it is essential to recognize potential collection problems early. Past due tends to get more challenging to collect the older they become.
Above is an example of a typical A/R aging report. This receivable management report may be generated at any time and provides a good picture of each customer’s account status. This report should be consulted frequently as it clearly shows, at a glance, problems that need immediate attention.