What is an accounts receivable and payable ageing analysis report?
Whether you’re a small business owner, a CPA, or part of a dedicated corporate accounting team, the success of your business relies heavily upon certain procedures and the data they generate. This particularly depends on how your small business cash flow management is true. Where the month-end closing process must be done properly to ensure the accuracy and completeness of your financial statements and balance sheet. It’s neither glamorous nor particularly enjoyable for many, but month-end close is essential to the health and happiness of not just your accounting department, but your entire organization.
Bills Receivables analysis / Bills Payable analysis is simply a time-based analysis with reference to the due date to determine either how much time is left until the due date or how much time has passed since the due date. Most of the time age or aged or ageing analysis refers to the second type of analysis i.e. how much time has passed since the due date and this analysis is used in context of receivables to determine steps required to recover debts from debtors. This also helps in determining bad debts. (Very long overdue bills can be considered for provision of bad debts or written off as bad debts.) In case of creditors usually the first type of analysis is prepared i.e. how much time is left until supplier’s invoice falls due so that the finance department can plan effectively for cash management accordingly in time.
Ageing or aging explanation
Sales and purchases on credit basis is part and parcel of business and due to credit based activities debtors (or receivables) and creditors (or payables) arise. Although the receivables are not received or payables are not paid immediately, such cash management for inflows and outflows respectively needs to be made depending on how often are cash flow statements prepared. If payments towards creditors are delayed then it hurts the cash flow of the business entity.
On the other hand if receivables are delayed then it hurts the entity's cash flow and hence keeps the entity from making investments or paying creditors on time and thus might have to take loan to make payments towards liabilities and hence put a burden on the entity's profits. In short if these inflows and outflows do not occur on time then the entity might face financial issues.
Ideally the cash flows should occur on the due date as mentioned on invoice. For example, your debtors should pay you by the date mentioned on the invoice you sent and you should pay your creditors by the due date as mentioned on the invoice sent by them.
Age analysis helps us compute how long the time has passed since the due date. So the due date acts as a reference point. Longer the time has passed higher the age will be of unpaid invoices. In simple words this analysis helps us identify the invoices that are past due and for how long they are outstanding usually in terms of days. Sometimes age is determined in terms of weeks, months or quarters as well but most commonly days are used as a measure.
Past due means the due date has already passed. For example if invoice is 30 days past due it means 30 days has passed since invoice has fallen due.
Aged analysis helps us determine at a particular date whether invoices are due or not. If they are due then how many days have passed since they are due.
The ageing analysis is usually constructed on a factor of 30 days. If ageing analysis is about debtors than usually management is interested in knowing how much time has passed since invoice has fallen due and it is still unpaid. The analysis is done as follows:
Not due: The invoices which that has not fallen due yet
Current: The invoices that fall due on the current date
30 days: The invoices that are past due for days between 1 to 30 days.
60 days: The invoices that are past due for days between 31 to 60 days
90 days: The invoices that are past due for days between 61 to 90 days
120 days: The invoices that are past due for days between 91 to 120 days.
>120 days: The invoices that are past due for more than 120 days.
These days such analysis is conducted easily through built-in features in computerized financial accounting and reporting software. This analysis can also be done using spreadsheet programs like Excel templates which are famous for producing such reports.