Definition:
An aging schedule is a report that shows the outstanding balances of accounts receivable by age. It categorizes accounts receivable into different age groups based on the number of days since the invoice was issued.
Key points about aging schedules:
- Credit management: Aging schedules are used to manage accounts receivable and collect overdue payments.
- Cash flow: They help to identify accounts receivable that are likely to be collected or written off, which can impact a company’s cash flow.
- Credit risk: Aging schedules can help to assess the credit risk associated with a company’s customers.
- Collection efforts: They can help to prioritize collection efforts by focusing on older accounts receivable.
Common age groups used in aging schedules:
- Current: Accounts receivable that are due within 30 days.
- 30-60 days past due: Accounts receivable that are 30-60 days overdue.
- 60-90 days past due: Accounts receivable that are 60-90 days overdue.
- 90+ days past due: Accounts receivable that are more than 90 days overdue.
Why are aging schedules important?
- Cash flow management: Aging schedules help to identify accounts receivable that are likely to be collected or written off, which can impact a company’s cash flow.
- Credit risk management: Aging schedules can help to assess the credit risk associated with a company’s customers.
- Collection efforts: Aging schedules can help to prioritize collection efforts by focusing on older accounts receivable.
In essence, aging schedules are a valuable tool for managing accounts receivable and ensuring that customers pay their bills on time.
