Why is Important to Keep Track of Your Accounts Receivable?

Aging Monitoring to Decrease Payment Delays

Accounts receivable, your customer’s unpaid invoices, are a short term asset on the balance sheet of your company. At any time, you should know exactly what that line item is comprised of. It is also convertible into cash upon collection and therefore is of great importance 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 when due to increased revenue, it is not if due to increased payment delays from customers. This is one reason that accounts receivable should be monitored closely.

One of the most useful reports to help with accounts receivable management is the aging report. This report typically lists each customer with its corresponding receivable balance allocated horizontally into age categories. Common ages are 0 – 30 days, 31 – 60 days, etc. An aging report allows you to see at a glance which customers are becoming delinquent, how delinquent they are, and by 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 important to recognize potential collection problems early. Past due tend to get more difficult to collect the older they become.