Does your business make use of an Aged Debtors Report? All businesses compile annual accounts as part of their statutory duties. Many also use management accounting tools to improve their business performance, especially if they are mid-sized businesses. This type of financial report is often completed each month and sheds light on the effectiveness of current business strategies. Here we put one such tool, the Aged Debtors Report, into the spotlight.
Identifying payment patterns
When you raise an invoice, money owed by customers is termed Accounts Receivable. Accounts Receivable is recorded on your balance sheet as an asset since it’s due to be paid within a year or less. By reviewing this information within an Aged Debtors Report or Accounts Receivable Ageing Report its possible to see whether payments are being made as expected and whether any further action is needed.
The report usually tallies up invoices and credit notes by customer and by time period so that you can see how much you can expect to receive from each customer, and the total amount that should reach you by a specific date. The report groups unpaid invoices that are due to be paid by time period, such as due within 30 days, in 30 to 60 days, in 60 to 90 days and in more than 90 days. Overall the amount of debt, pace of payment and percentage owed will be brought into sharp focus.
Managing debt levels
In some instances, your Aged Debtors Report will show a healthy situation with invoices being paid within the credit terms that you have agreed. In other cases, your business may be carrying more debt than you want and with a greater than industry average time lag between issuing invoices and receiving payment. If debt levels and sluggish payments are an issue you can consider:
- Checking the type of customers you are attracting and looking at the credit and ordering profile of good payers versus late payers. You can then put in place credit checks and other measures to attract better payers and avoid risky payers.
- Altering your payment terms to require advance or staged payments. Or you could encourage swifter payment with incentives for early payment and penalties for late payment.
- Examining how you operate in terms of invoicing and following up payments. Perhaps you can improve the payment options for customers to settle their invoices or add new measures to chase late payments sooner or block further orders when debt reaches a set level, until payments have been received.
Management accounts reports concerning creditors are also valuable and show what your business owes to suppliers. These financial reports can help you to improve how you select and work with suppliers through your purchasing process.
For more information on how management accounts will help you – c click the the link to read our blog: How to make better decisions with Management Accounts
For Management Accounts support to enable you to make better financial decisions please contact our professional team at email@example.com or call us on 01992 444466.