Accounts Payable Aging
Aging of accounts payable is sorting of the company’s payables to suppliers by due date. The report usually categorizes the payments of invoices that are yet to be made by the company based on different time frames. The report lists supplier invoices under the following successive columns:
- 0 to 30 days
- 31 to 60 days
- 61 to 90 days
- Older than 90 days
The aim of the accounts payables aging report is to help its user in identifying invoices that have become overdue for payment. In other words, the said report provides its users with an overview of what your entity/ business owes for inventory, supplies, and services.
Here’s an accounts payable aging report sample/ template:
|Sr. No#||Company Name||Current $||1 to 30 Days $||31 to 60 Days $||61 to 90 Days $||Over 90 Days $||Total $|
Importance of Accounts Payable Aging Report
Accounts payable aging report provides its users a highly effective way to monitor its expenditures. The aging report plays a vital role in helping businesses in managing their cash flows because it can be used in distinguishing suppliers that should be paid immediately and the ones which can wait for longer time periods.
It also helps businesses in highlighting upcoming obligations which in turn aids in the process of planning payments.
The use of an accounts payable aging report helps an entity in increasing its financial stability through budgeting and preparing it for future growth and success.
Reviewing Accounts Payable Aging Report
The accounts payable aging should at least be reviewed on a monthly basis if not on a weekly basis. Reviewing the said report allows you to see whether you are paying invoices as they become due or relying too much on credit. It also provides you with an opportunity to identify potential issues in time so that you can take preventative measures to resolve the issues that have been identified at the first place. Furthermore, it can also help you in managing your cash flow in a better way by providing you with all the necessary accounting information which you can use in devising strategies to improve your cash flow situation. For example, you could try your hand at negotiating better credit terms with your vendors by requesting either an extended credit period or a discount for prompt payment.
Important Factors to Consider When Reviewing Accounts Payable Aging Report
Since we all know that accounts payable aging is based on the time period that has passed since the pending purchase invoices were received from the vendor. The important thing to consider when reviewing an aging report is that the payment schedules of all the vendors are not the same. Some suppliers allow 15 days for payment while others may provide longer or even shorter credit periods. When evaluating and reviewing the aging report and planning payments to vendors, it is important that you keep actual due dates of invoices in mind.
Risk Associated with not using Accounts Payables Aging Reports
If for any reason you forget to review the accounts payable aging on a regular basis then you expose yourself to the threat of getting in trouble with your vendors. Reviewing the said report on a regular basis provides you with the chance to monitor your expenses, identify potential issues, oversee payments and identify areas where you could use new strategies to better your cash flow situation.