Does Your Company Prepare Accounts Receivable Aging Report?
As we know, cash flow is of the utmost importance to the operations of a business as a company needs cash for it to continue running. Even though a company has been quite profitable, it may be insolvent if it failed to manage its cash flow efficiently. When it comes to cash flow, one part that all business owners should never neglect is the accounts receivable. To manage accounts receivable efficiently, the accounts receivable ageing report may be able to lend a helping hand.
The accounts receivable ageing report lists the balances of the invoices that have not been paid as well as how long they have been outstanding. With the help of this report, business owners will be able to determine the unpaid invoices so that they can stay informed about the slow-paying clients.
However, before they can generate this report, they need to make sure that they have kept well-organised records for all the invoices issued to their clients. This can be a challenging task for those who are busing managing their business and do not have prior knowledge in bookkeeping (Also see The Advantages and Disadvantages of Single-entry Bookkeeping) and accounting. In this case, instead of letting the books of accounts being undone, a smarter choice would be hiring a bookkeeping firm in Johor Bahru.
The accounts receivable ageing in accounting is the process of arranging the accounts receivable according to their due dates so that the business owners can use it to estimate the bad debt expense that will possibly incur. For business owners to determine the average age of accounts receivables, they need to generate accounts receivable ageing report regularly. With the help of this report, business owners will be able to collect payments as soon as possible and determine potential losses that arise from bad debts.
When dealing with the accounts receivable, the ageing schedule which displays the unpaid bills and invoices, as well as their due dates, can be very helpful too. This schedule shows the sum of accounts receivable that have been outstanding for a certain period. Business owners can use this schedule to identify clients who are making the payment on time. They may also use it to predict the company’s future cash flow.
The accounts receivable ageing report is crucial for all businesses as it helps business owners in the evaluation of payment terms so that they can make any adjustments (Also see What are Accounting Adjustments?) if necessary. By referring to this report, they will know which clients will usually make the payment late and consider stop supplying products or providing services to them. This is to avoid the situation where the business faces the problems of late payments, which may ultimately cause the company to be having to write off (Also see Understanding Direct Write Off Method) the bad debts.
Also, business owners get to know the condition of collection of payments by using the report and thus, they can contact their clients regularly to remind them of the payments. If some of the clients always fail to settle the invoices on time, business owners should cut off the relationship with them. This is because the late payment of such clients can result in cash flow issues in the company in the long run.