Accounts Receivable (AR) Aging Report: Definition, Calculation, and Benefits
- Joy Nguyen
- May 18, 2023
- 4 min read
Updated: Jun 26, 2024
Do you feel like a hamster on a wheel, always chasing payments and worrying about cash flow? Are you frustrated by inaccurate invoicing, payment delays, and struggling to collect outstanding balances? Relax! We've got the solution for you!
The accounts receivable (AR) aging report is a tool that can help you manage your finances better. In this blog, we'll explain what accounts receivable aging is, how to calculate it, and outline the benefits of using this report.
Table of Contents:
Definition of Accounts Receivable (AR) Aging Report
AR aging provides a clear snapshot of the outstanding invoices by age. AR aging report breaks down your invoices into categories based on how long they've been due. For example, 0-30 days old invoices would be in one category, while 31-60 days old invoices would be in another.
The AR aging report is used to track and manage cash flow. It also helps detect late-paying clients and can reveal invoicing or collection issues.
Calculation of Accounts Receivable (AR) Aging
To calculate the accounts receivable (AR) aging report, you'll need to organize your outstanding invoices by their age. Here's an example breakdown:
Invoices that are 0-30 days old: $50,000
Invoices that are 31-60 days old: $10,000
Invoices that are 61-90 days old: $5,000
Invoices that are over 90 days old: $2,000
To calculate the total accounts receivable, you would add up all of the outstanding invoices: $67,000. This is the amount that the company is owed but has not yet been paid. The accounts receivable aging report breaks down this total by age category, as shown above.
Benefits of Using Accounts Receivable (AR) Aging Report
In our previous blog, we talked about why the AR aging report is crucial for businesses. Business owners can use the report to avoid bad debt by monitoring overdue invoices and adjusting credit policies accordingly. They can also estimate the amount of bad debt they might face and identify any collection issues that need improvement.
No wonder contractors have been using this AR report for decades to improve their aging of accounts receivable!
But we're not done yet!
Here are even more reasons why contractors use this AR report to manage their aging of accounts receivable:
Identify Late-Paying Customers
No more guessing games! The report helps you identify those customers who consistently delay their payments. This information is crucial to taking proper action and ensuring you collect all the outstanding amounts.
Maintain Stable Cash Flow
The AR aging report gives you insights into when payments are expected to be received. This helps you manage cash flow more effectively and avoid unexpected shortfalls. So, you'll be able to cover upcoming expenses like payroll or vendor payments, giving you greater cash stability and peace of mind.
The Pain of Managing Receivables in Construction
With limited time and a lack of accounting expertise, construction business owners often face these challenges when managing their aging of accounts receivable:
Inaccurate or incomplete invoicing
Delays in payments
Difficulty collecting outstanding balances
These issues can lead to frustration, cash flow problems, and even jeopardize the future of the business.
How a Bookkeeping Service Firm Can Help You
Until this point, you have quickly learned that using an accounts receivable aging report is key to AR management success, particularly because it helps you to:
Identify overdue payments and take action.
Spot trends in late payments and address the underlying causes.
Improve cash flow and cut the risk of bad debt.
But how can you access the most updated AR aging report? The answer is to hire a bookkeeping service firm.
Outsourcing your accounts receivable management to a reputable bookkeeping service firm like Cost Construction Accounting (CCA) can be a game-changer. They can provide expert support and advice, making it easier for you to manage your accounts receivable with the latest and most accurate A/R reports.
Here are some of the extra benefits of outsourcing your accounts receivable management to a bookkeeping service firm:
Improved accuracy and completeness of invoicing
Time savings and increased focus on growing your business
Expert support and advice from a team of accounting professionals
The ability to keep up with the latest regulations and compliance requirements
CCA can help you stay on top of your accounts receivable and improve financial stability. Their expertise helps you prevent mistakes, increase accuracy, collect overdue payments, and achieve financial stability.
In Conclusion,
Managing accounts receivable can be a challenge for construction business owners; therefore, an accounts receivable aging report is needed to help you identify issues and improve cash flow management. By leveraging the power of this report, you can stay on top of your receivables and avoid unnecessary stress and frustration.
By partnering with a bookkeeping service firm like CCA, you can gain access to expert support, improved accuracy in invoicing, time savings, and increased focus on growing your business.
So why continue to chase payments and worry about cash flow? Let CCA help you unlock the power of the accounts receivable aging report and take your construction business to the next level!
Schedule a FREE consultation with CCA today!
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