We all age …even the accounts receivables! Aging accounts receivables refer to the length of time an invoice has been outstanding. It is not advantageous to let account receivables age. It’s healthier for a company to ensure invoices are honored on time instead of payments getting delinquent or aged.
Mostly we do not default on payments of our utility bills like corporation tax/ water and property tax/ electricity bills. We get billed after the utility of these services. Because these are essential for our daily living we ensure we pay on time or at least at the earliest with a small fine. We do get reminders for late payments before the authorities take further action.
However when it comes to returning of borrowed funds this responsibility to pay back on time is not taken very seriously. Firms offer credits for products and services so the customers choose their products over the competitors’ products. But when payments are not received on time or as committed it hinders the entire functioning of the company.
Accounts receivable aging is a periodic report is used as a gauge to determine the financial health of a company’s customers. If an accounts receivable aging demonstrates that a company’s receivables are being collected much slower than normal, this is a warning sign that business may be slowing down or that the company is taking greater credit risk in its sales practices. The report shows the complete outstanding’s that are due and overdue. The report enables the outstanding’s to be traceable and manageable.
This report enables a company to change its strategy in dealing with its clients especially the chronically late payers . If a company experiences difficulty collecting accounts, as evidenced by the accounts receivable aging report, specific customers may be extended business on a cash-only basis.
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