According to most experts, a business’s cash flow is more critical than its profit. How could this be, you might wonder?
Your company’s profits matter, as profits show how much money you make. However, cash flow keeps your business going. Therefore, if you offer accounts receivables to your customers, you must keep a close eye on them.
One way to do this is by using accounts receivable aging report. If you’re unsure about what this is, you should learn.
Here is a guide to help you understand what it is and how it helps a business improve its cash flow.
The Basics of Accounts Receivables
Accounts receivable is the opposite of accounts payable. Your accounts payable refers to money you owe companies and people. On the other hand, accounts receivable is the money people owe you.
When you sell goods or services on account, you give your customers time to pay their bills. For example, you might offer 30 days from the invoice date or longer.
The outstanding payments become part of your accounts receivable.
How an Accounts Receivable Aging Report Works
Tracking your business finances is an integral part of every business, and you can do this in many ways. For example, if you offer accounts receivable, you must track these accounts.
You can do this through an AR aging report.
An AR aging report tracks every outstanding balance your customers owe. The benefit is that it tracks the balances by age.
For example, your aging report might have several columns, including the following:
- Current balances
- 1-30 days past due
- 31-60 days past due
- 61-90 days past due
- More than 90 days past due
You can create these reports weekly or monthly and use them to determine when your customers should pay their balances.
If you need help with this, check out Finvisor.
How to Use It to Improve Cash Flow
After learning about the information found on an AR report, you’ll need to learn how to use it to improve your company’s cash flow.
The first thing to do is to print these off monthly.
Next, you can analyze the information. If every customer’s balance falls into the “Current” status, you won’t need to do anything or change anything. Having everyone current is the primary objective with accounts receivables.
If you have customers with balances in the other categories, you’ll need to pursue payment of these debts. You can assess late payment fees and send letters to them to remind them to pay their bills.
If you can find successful efforts to improve the speed at which they pay their bills, you’ll improve your cash flow.
Start Monitoring Your AR to Increase Cash Flow
If you want to increase your company’s cash flow, you might want to start using accounts receivable aging reports.
When you use one, you can monitor all the cash your customers owe, helping you find ways to improve your collection efforts. The result is an improvement in cash flow.
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