Never Fall (Too) Behind: The benefits of an accounts payable aging report
Often as a company scales, so does its debt. This doesn’t necessarily mean things are in bad shape; it just means that more business comes more inventory which brings more frequent bills from vendors. Bookkeeping — as stodgy as it sounds — becomes a critical element to keeping any business alive and its cashflow moving smoothly.
An Accounts Payable Aging Report, sometimes shorthanded to “A/P Aging Report” is a method of accounting that itemizes all of a business’ accounts payable. An aging report offers a systematic way of keeping track of bills, invoices, bank credit, or loans, especially as those dues arrive from different vendors and on different payment schedules.
The ultimate goal? Lose as little money to interest as possible by paying off what matters the most, first.
But wait, what are Accounts Payable again?
Glad you bravely asked. Accounts Payable is basically all the money that a company owes to its vendors or suppliers. (It’s a number you don’t want to see get too high for too long). When a company buys inventory, materials, or goods, for example, an accountant might log those purchases as A/P. They might also choose to do this at the time of invoicing. The figure is Accounts Payable if it hasn’t yet been paid.
Generally speaking, Accounts Payable should not be too feared — just tamed. Most A/P is a short-term liability, which is generally paid away within one year.
For a lot of small businesses, the primary challenge of Accounts Payable is scale. Vendors invoice on differing schedules, and require payment at different times. Loans and bills come with a myriad of interest rates and fees. Prioritizing all of these payments can lead to things getting complicated, fast. That’s where an A/P aging report comes in.
What does an A/P Aging Report look like?
Think of an A/P Aging Report like a snapshot into what you owe at any given point in time. Varying interest rates and payment schedules can affect your liability over time, so an effective A/P Aging Report is helpful to synthesize your outbound finances and ensure timely payment.
Traditionally, A/P Aging Reports bucket invoices by the dates in which they’re owed. In doing so, the report should sort A/P by how many days overdue or “aged” they are. Since most invoices come around in 30-day increments, a baseline A/P Aging Report might categorize bills into the following timeframes:
- Current = Payables that are due now.
- 1-30 = Any payables overdue by 1-30 days
- 31-60 = Any payables overdue by 31-60 days
- 61-90 = Any payables overdue by 61-90 days
- 91+ = Any payables overdue by more than 90 days
What is essential for any A/P Aging Report is to include the consequences of delayed payment. It would seem that payables overdue for months would incur more debt than those overdue by weeks, but this is not always the case. Financial teams must build their A/P Aging Reports to precisely account for the other variables.
The best ways to manage your accounts payable?
Keeping your accounts payables in order can feel like juggling a million balls in the air (hopefully you don’t have a million outstanding vendor invoices, though).
Although the process of A/P management can seem somewhat daunting, there are actually some easy-to-follow, generalized guidelines for staying up-to-date with your financial affairs and setting your company up for success.
Update A/P Aging Reports consistently
In life, if you see something, you should say something. However, in an organization, you should instead say something if you see a new payable account is created. What we really mean is that immediately logging new payments into your A/P aging report will keep your records as current as possible.
Not only will you be able to resolve accounts sooner, but having your bills well documented by due date will give you a clear snapshot of what has yet to be paid off so you can avoid late fees.
Create healthy relationships with vendors
Seemingly obvious and yet incredibly important, having a trustworthy relationship with your vendors is essential to your company’s credibility and overall financial health.
In a chicken-egg fashion, that trust actually comes from a well-organized accounts payable system. How, you ask? In our own terms, a company is only as good (or trustworthy) as its ability to pay vendors on time. When vendors get paid on time, it not only ups the likelihood of their continuing to partner with your company, but it also provides an opportunity to negotiate better payment terms.
Look for opportunities for savings or discounts
“A bargain bin for accounts payable?!” Well, kind of.
It’s not all about spotting the big interest rates and fees; sometimes it’s about discovering discounts, too!
Companies have the opportunity to look for discounts when it comes to their accounts payable. Some vendors or banks (the ones you have a good relationship with, remember?) offer discounts for paying early. While the discounts might seem negligible, they can add up pretty quickly to some significant savings over time. Obviously, this is only worth taking advantage of if your company is financially in a stable place to pay early.
You can also use an AP aging report to identify areas of potential overspending within different areas and implement cost-saving measures.
Create consistent reminders
In the same way you likely have an alarm set for the priorities in your personal life, it can be a game changer to set reminders to pay off invoices at specific times.
Setting reminders is super easy, and can be created with a calendar, an app, online accounting software, or automation tools likeSettle to ensure that the accounts are paid on time.
How Settle helps you visualize your AP Aging
It can be difficult for a small brand (or a large one!) to keep track of every single invoice or bill they owe. That’s why so many turn to Settle to automate their accounts payables. You can organize your vendors, pay bills quickly (including past-due bills), split payments, pay with partial payments, manage purchase orders. You can also get an accurate and comprehensive report for A/P aging and see the total amount owed to vendors by aging period in 30-day ranges (1-30 days, 31-60 days, etc) with our AP aging visualization. You can view the balances you owe by vendor name.
Settle also pays your vendors upfront so you can avoid missing payments while managing your cash flow. This means you’re able to cut through your Accounts Payable at a faster rate, and consolidate what you owe into a streamlined, more comprehensive payment.
Settle AP aging chart
Sources:
- What Are A/P Aging Reports in Accounting? | Houston Chronicle
- How to Use an Accounts Payable Aging Report | Patriot Software.
- Accounts payable aging report definition | AccountingTools.com
