Aging Accounts Receivable

Written by Patricia Tunstall
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Accountants aside, people don't usually think of accounts as "aging," but this is an important and useful concept applied to accounts receivable. It is an accounting tool that enables you to track accounts receivable using the date the charges were incurred. You are then able to see at a glance the approaching due dates of payments, and the number of days or weeks that invoices are overdue.

Needless to say, this monitoring is critical to an efficiently-run business that maintains a healthy cash flow. By staying on top of accounts receivable, managers prevent them from controlling the business instead of the other way around. Allowing invoices to get too large, or too overdue, can be fatal to a business in a short time. Account aging can be used for accounts payable, but the technique is mostly reserved for accounts receivable.

Factors Provide an Aging

Factors--banks and companies--provide many services to clients, and one of the most important is providing an aging of accounts receivable. These reports keep you aware of just where each account stands as far as amount owed and payment due dates. By preparing a current aging of your accounts receivable, these factors supply discipline and control to a financial situation that has obviously gotten out of hand.

Factors charge fees, which are deducted from the face value of the invoices, and often, their fees will be determined by the age of the account. An aged 30-day invoice would be within a specified range of percentages, and an aged 60-day invoice would have a higher percentage of fees. This is because of the longer wait for payment, and the greater risk of non-payment, attached to the longer credit period.

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