The Importance of the Accounts Receivable Aging Report

The Accounts Receivable (A/R) Aging report is a critical tool for managing your business. Most factoring companies request an A/R Aging Report as part of their application package because it gives them a good idea of your receivables portfolio. Surprisingly, a number of companies do not have this valuable report available – a sure indication that they are not using it. This article helps you understand the A/R Aging Report and why factoring companies ask for it.

What is an aging report?

An aging report groups outstanding invoices into date categories. The categories are usually:

  • Current – invoices that are within terms
  • 1 – 30 – invoices that are 1 to 30 days past due
  • 31 – 60 – invoices that are 31 days to 60 days past due
  • 61 – 90 – invoices that are 61 days to 90 days past due
  • > 90 – invoices that are more than 90 days past due

Here is an example of an aging report:

accounts receivable aging report

Why is an aging report useful?

An aging report is useful because it gives you a snapshot of the money that is outstanding and due to you by your customers. It also helps you identify customers that are falling behind on their payments – a clear sign of an underlying problem. Note that slow payments do not always indicate financial problems; it could indicate a possible dispute or misunderstanding. Many companies use this report when planning collections calls and when trying to forecast their cash flow.

How do factoring companies use the aging report?

Factoring companies request the aging report because it helps them understand your outstanding receivables and their quality. Factors use this report, in combination with commercial credit reports, to determine the state of your receivable portfolio and its value. As such, the aging report is a critical component used to create factoring proposals.

Also, the aging report is used in the due diligence process to detect invoices that pay slowly. The report helps identify possible collections issues.