Your aged debtors report: what it means and what you should do about it to manage debt
The word debt can strike to the very heart of our worries and concerns about our businesses. Being in debt is no easy ride and managing it well, along with everything else on your plate, is not for the faint-hearted. Dealing with debt owed to you can be tricky, and the terminology even trickier. Let’s look at one such phrase that you need to be familiar with if you value the financial health of your business: the aged debtors report.
So what is an aged debtors report?
An aged debtors report shows you all the money that is owed to you by customers or, in other words, your debtors. The word “aged” can be misleading. It seems to suggest it is debt from a distant past, but it shows you all debt owed to your business, and how long it has been outstanding. It’s a helpful tool for spotting long-standing debts so you can focus your attention on recovering it.
Why do I need an aged debtors report?
An aged debtors report can tell you a lot about your customers and the financial health of your business. It can help you see how much you are owed, by whom and for how long the debt has been outstanding. And that’s just the start. Depending on how detailed you want your report to be, it can also tell you a lot about your customers’ cash management habits. This might be who owes you the most and how long it takes each customer to pay you.
The main reason to have one, though, is as a tool to help you make sure invoices are being paid on time. If you have 30 day payment terms, for example, you can use the report to chase up anything over 30 days outstanding. Or, if you’ve got a team who should be managing your credit control for you, it will give you an indicator of how effective their follow up is. Do you have unpaid invoices going back several months? The report will tell you this and show you the customers who might need some support to pay their debt on time.
You can also feed the insights from your aged debtors report to more accurately predict your cashflow at any given time based on when your invoices are likely to be paid. This means you can plan accordingly for an injection of funds to pay for the running of your business.
How can I create an aged debtors report?
You can generate an aged debtors report from your accounting software and we recommend you run it at least once a month, just to keep an eye on things
You have lots of options on how you group the debt and how detailed you want it to be. There are summary (showing you only customers and the amount they owe) and detailed (including invoice numbers, dates) versions and you can usually change the days in each aging period (so if you have 15 days terms, you’d look at it in 15 day intervals rather than the standard 30). Oh and there is a similar report you can run showing what you owe other people (called an aged creditors report) which is also handy to keep on top of invoices you need to pay.
If you’ve never run an aged debt report before, seek it out and try changing various settings to see what gives you the information in a format that works for you.
If you would like help with determining your business’ financial health or managing debtors, get in touch with us today.
