What is debtor aging?
- Account receivable aging often serves as a record to show the outstanding balances of customers along with the time bucket.
- It helps the businesses to identify slow payment customers
- Aging report will list out the unpaid balances by categorized into the time frame such as: Current, 30 days, 90 days, 120 days and more
Purpose of aging report
- To monitor the status of their accounts receivables.
- To identify long outstanding customers by referring to the date range.
- To determine slow repayment customers and those balances which exceeding the credit terms granted to customers.
- Showing the Company’s ability for collection
- Indicates customers’ credit risk
- To estimate potential bad debts and allowance for doubtful debts
- Reflect the Company’s cash flow situation
Why the aging report is important?
- The Company able to well track the collection from customers
- If the amount was due, it indicates poor collection efforts or poor quality of debts
- For those more than one year outstanding balance, the Company should assess whether the amount is still collectible
- It further reflects the Company’s cash flow position
- The aging method allow the company to target for those customers who required follow-up procedures for payments
How to manage late payment?
- Implement late payment charges, e.g. charge interest on overdue amount
- Providing discount or incentives for those earlier payment
- Consider automate follow-up process to schedule reminder emails