Ho Do I Prepare an Accounts Receivable Aging Report? How Do I Read the Report?

Question: Ho Do I Prepare an Accounts Receivable Aging Report? How Do I Read the Report?

Rule #1 in debt collection is "The longer a debt is owed, the less likely you are to be able to collect it." So, knowing about your customers and their debts is vital to collecting from them. One of your most important debt collection tools is an accounts receivable aging report.

Answer:

What is an Accounts Receivable (A/R) Aging Report?
An a/r aging report lists each customer, their balance due, and the time that balance has been outstanding. The report usually categorizes the sections as: "Current, 30 days, 60 days, 90 days, 120 days, over 120 days" or something similar. If the customer has several bills that were incurred at different times, the report will show how much is due at what time. For example, for Jim Jones:

• $230
  30 days
  
  
• $120
  60 days
  
  
• $390
  Over 120 days.

How do I interpret this report?
Read an a/r aging report remembering Rule #1 of Collections: The longer a bill is outstanding, the less likely you are to collect. Here are some guidelines to consider when reading an a/r aging report:

• First, look at the greatest amounts of money owed by all customers. Are these amounts current? Are they 30 days? Or have these bills been outstanding for 120 days or more? Working on the 80/20 principle, going after the biggest offenders (using your collections management system, of course) will bring you the highest return. Determine how you will handle each of these large bills, write up a plan, and have your accounts receivable manager start working.
  
• Next, look at those bills which have been due for a long time. Determine whether you are ready to take this customer to the next step of the collections process: collections agency, or small claims court. Or do you think this bill is unpayable?
  
• Finally, use your collections system to determine how you will contact all customers with bills 30 days overdue or more. Let the system guide you, but don't hesitate to make exceptions. For example, you might know that a customer's wife has terminal cancer, and you might decide not to take that person to court. It is your company; you get to decide.

In conclusion, you can use the a/r aging report to make decisions on next steps for all customers who owe you money. Use the collections process you set up, and always remember Rule #1.

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