subject: An Accountants Perspective: Aging Of Accounts Receivables [print this page] Any business, other than retail, must offer payment terms to its customers in order to be competitive. Payment terms on cash due from customers "" also known as accounts receivables "" are loans that you extend to customers. By offering these loans, you are giving customers the ability to manage their cash flow. This is important in commercial transaction because the ticket price of such items is typically larger and your customers are likely offering payment terms to their customers, as well. You probably already understand that there is an impact from these "loans" on your business. The more receivables that remain unpaid, the tougher it is for you to purchase materials and pay your own obligations.
For this reason, accountants regularly run an Accounts Receivables Aging report. This report can be created manually, although a lengthy customer list can make the process time consuming. The good news is that business accounting packages will include automatic generation of this report as a standard feature.
An A/R aging report should be laid out with customers on the vertical axis and payment buckets along the horizontal. Buckets should be multiples of your standard payment term cycle. In other words, if your terms are net 30 days, then you will need buckets for 0-30 days, 31-60 days, 61-90 days, 91-120 days and over 120 days. Insert the amount owed by a customer based into the appropriate buckets and you have an easily digested view of how your business cash flow can be impacted by receivables.
A healthy A/R report should show the majority of cash outstanding in the 0-30 day bucket. If a customer has amounts due in multiple buckets, it suggests they are having difficulty paying bills. Contact them as soon as possible to discover what the problem is, and work out a payment plan to get them back on track. Several customers with amounts that are late suggest that you may need to tighten your overall collection practices or even consider outsourcing accounts receivables. Large amounts past due, whether concentrated in a small group of customers or spread over several, means that your business is suffering and it is definitely time to seek help. There are many companies that specialize in commercial debt collection. These experts can help you recover the money owed -- often for a modest percentage of the total amount owed -- while helping you maintain your customer relationships.
Accounts Receivables are assets to your business, but if not managed properly they can also be a source of strain on customer relationships and on your company"s bottom line. Monitor your A/R Aging Reports and keep up with amounts due"before they become a problem.
by: Gene Lavine
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