How to Manage Accounts Payable Aging Reports
Are you getting the most out of your reviews of your company's accounts payable aging reports? Used properly, these reports can offer invaluable insight, making them an extremely useful tool for managing your business and its cash flow. Here is what you need to know to utilize your accounts payable aging reports effectively.
What is an accounts payable aging report?
Simply put, an accounts payable aging report gives you an overview of what your business owes for supplies, inventory, and services. A quick glance at this report reveals the identities of your creditors, how much money is owed to each creditor and how long that money has been owed.
How is an accounts payable aging report laid out?
These reports sort your payables, categorizing them by the time that has passed since the invoice requesting payment was received. Generally, the first column lists your suppliers. Another column lists the total amount owed. Additional columns provide a breakdown of payables that are less than 30 days old, between 31 and 60 days old, between 61 and 90 days old, and more than 90 days old.
What value Does an accounts payable aging report offer?
Accounts payable aging reports provide a highly effective way for a business to monitor its expenses. It can be especially handy when it comes to managing a tight cash flow because it assists you in determining which of your vendors should be paid immediately and which can wait a bit longer. It also makes it easy to see upcoming obligations, which can aid you in the process of planning your payments. Ultimately, using an accounts payable aging report properly can help you increase your company's financial stability through budgeting and prepare it for future growth.
How often should an accounts payable aging report be reviewed?
In most cases, the accounts payable aging report should be run and reviewed on a monthly basis. Doing so allows you to see whether you are making payments appropriately or relying too heavily on credit. It also affords you the opportunity to spot potential issues quickly so that you can take steps to address them. Furthermore, it can provide the accounting information required for you to develop and implement strategies that improve your business's cash flow situation. For example, you might choose to try your hand at negotiating better terms with your vendors by requesting either a discount for prompt payment or an extended due date.
What do you need to keep in mind when reviewing this report?
Since accounts payable aging reports are typically based on the time that has passed since the invoice was received, it is crucial to remember that not all payment schedules are the same. Some vendors allow thirty days for payment; others have shorter or longer windows. This means that the bill that has been outstanding the longest might not actually be the first one due. When reviewing the report and planning your payments, it is vital that you keep actual due dates in mind. In addition, some vendors offer discounts when payment is received within a certain period of time; if this discount is substantial, it may serve as an incentive to pay their invoices before others.
What happens if you fail to use the accounts payable aging report properly?
While the world as we know it certainly will not end if you forgo scrutinizing a few accounts payable aging reports, you do run the risk of missing an opportunity or finding yourself in trouble with creditors. Reviewing this report regularly gives you a chance to monitor expenses, oversee payments, pinpoint potential trouble spots early, and identify areas where you could implement new strategies and improve your business's cash flow. Since these tasks are vital to a company's success, the time spent running and reviewing accounts payable aging reports is generally time well spent.