Preparing an accounts payable (AP) aging report is a crucial aspect of the AP process in every business organisation. For one, it aids in financial management by providing an overview of the company’s outstanding debts. It also serves as a source of insight into the organisation’s current financial standing, allowing the company to protect its business cash flow.
But what is an accounts payable aging report and how do you create one? Read on to know more about this crucial business document.
What is an Aging Report in Accounts Payable?
An accounts payable aging report is a record of payments a company owes to its vendors or suppliers.
Using an AP aging report helps businesses manage their financial obligations more effectively. In particular, the report serves as a guide in identifying which invoices are past due.
It is also helpful when a company is short on cash and must choose which vendors to pay in the meantime. The report enables the company to quickly identify such vendors by simply looking at the most urgent invoices.
5 Steps to Prepare an Accounts Payable Aging Report
Here’s a quick guide on how to prepare an accounts payable aging report.
1. Use an AP automation platform to prepare your report
You must use the right software when preparing an accounts payable aging report. Here, utilising an AP automation platform can help you create an accurate and comprehensive report. The right platform can also streamline and speed up the report-making process by pulling up relevant data during the accounts payable aging analysis process.
2. Organise your report
It’s time to organise your report after generating the needed data from your AP automation software. Start by sorting the information into three categories—the vendors to whom you owe balances or payables, the respective amounts due, and the dates they become overdue.
3. Categorise your outstanding invoices
The next step is to categorise your outstanding invoices in 30-day intervals, such as the following:
- Current: Due immediately
- 1–30 days past due
- 31–60 days past due
- 61–90 days past due
- 90+ days past due
Ideally, the first column should show balances that are due immediately. The second column should contain invoices that are 1 to 30 days past due, and so on. Arranging your account payables this way allows you to easily spot the most urgent invoices.
4. Filter your report
Be sure to filter your report by highlighting which vendors you owe the most money. This will help you identify opportunities to discuss payment arrangements with concerned suppliers. Also, mark the balances that must be paid immediately to avoid incurring bad debt.
5. Update your AP aging report
Remember to update your AP aging report regularly to reflect any movements in your payment schedule.
A good practice is to remove an amount from your report once an invoice has been paid off.
Suppose you have fully paid off Vendor A’s invoice of $150 that’s two months overdue. In that case, you should change the value in the 31–60 days past due column to, say, $0.
This step will allow you to easily monitor your company’s payment compliance to your vendors. It will also facilitate a real-time update of your current cash flow.
Automate Your Accounts Payable Process with Spenmo
Knowing how to prepare an accounts payable aging report is crucial to keeping your business finances in check. Here, it’s essential to use the right software to create an accurate and comprehensive report.
You can streamline your accounts payable process with Spenmo. Spenmo’s end-to-end payables software brings internal spend management, automated bill payments, approval workflows, and accounting reconciliation into an integrated view. Our vision is to create a seamless payables experience for fast-growing companies.
Book a demo today to learn more about the platform!