An accounts payable aging report not only provides insight into outstanding bills and obligations but also helps manage cashflow. In this blog, we talk about how to prepare an accounts payable aging report that is both comprehensive and easy to make.
What Is an Accounts Payable Aging Report?
An accounts payable (AP) aging report is a record of unpaid invoices your company owes to vendors for a given accounting period. This report organises outstanding payables by their due dates, putting the overdue amounts first.
It’s important to note that, while similar, it is not the same as an accounts payable (AP) report. While an AP report provides an overview of all the amounts your business owes to its vendors, it doesn't necessarily categorise them by how overdue they are. On the other hand, an AP aging report specifically focuses on the status of outstanding invoices based on how long they have been unpaid. It categorises the payables into sections like current, 30 days overdue, 60 days overdue, etc.
How to Prepare an Aging Report for Accounts Payable
1. Compile all the invoice details
Start by collecting detailed information on all outstanding invoices your business has yet to pay. This includes identifying the vendors associated with each invoice, invoice numbers, issue dates, due dates and the amounts owed.
To avoid missing anything, make sure that you gather this information from various sources, including digital records, manual records and email communications.
2. Determine the aging periods
Now that you have all the details, decide how you want to segment the aging periods of your outstanding invoices—by days or by calendar months—depending on your accounting practices and industry standards.
If you choose to segment them by days, you’ll typically use standard intervals such as 0-30 days, 31-60 days, 61-90 days and 91+ days to align with common vendor payment terms.
On the other hand, choosing to categorise invoices by calendar months may be useful if your business follows a monthly reporting cycle.
3. Categorise invoices based on the due date
Once your aging periods have been determined, arrange your outstanding invoices chronologically by their due dates. This process may be complex depending on how your vendors present their payment terms and whether your invoices are stored digitally or manually.
Begin by sorting invoices from the earliest due date to the most recent. If you’re working with digital records, you can use sorting features available in your software or spreadsheet. For physical invoices, you might need to manually sort and categorise each document.
4. Categorise invoices based on aging periods
Determine the number of days that have passed since each invoice was due. Subtract the due date from today's date to find out the number of overdue days for each invoice.
After calculating the overdue days, organise each invoice into the corresponding aging period based on the intervals you set in step 2 (e.g., 0-30 days, 31-60 days, 61-90 days).
The difference between this step and step 2 is that the latter focuses on deciding how to segment your invoices, while this step is about implementing that segmentation.
5. Calculate
Lastly, compute the total amounts owed to each vendor within each aging period, then determine the total of all outstanding payables.
This comprehensive total reflects the total amount your business owes across all invoices and aging periods.
Tips on How to Prepare an Accounts Payable Aging Report
1. Ensure accurate records
Ensure accurate records by cross-checking your data against the original invoices and source documents to confirm that there are no errors or omissions. Pay close attention to common issues such as typographical errors, incorrect dates or miscalculated amounts. It may be helpful to use automated tools or software features that can highlight discrepancies or inconsistencies in your data entries.
2. Update reports regularly
Regularly review your accounts payable aging report on a monthly basis to ensure that the information remains current and reflects any recent transactions or changes. For instance, if you have paid off an invoice in full, you should update the report to reflect this payment.
3. Make sure the vendor info is detailed
Be sure to include detailed vendor information to maximise the effectiveness of your report. This should encompass key details such as contact information, payment terms and any special instructions or agreements associated with each vendor.
4. Communicate with vendors
Proactive communication with your vendors allows you to keep them informed about any potential delays from your side. This can then help in managing their expectations and maintaining trust. For instance, if your business is experiencing temporary issues with cashflow management, informing the vendor early can prevent misunderstandings and demonstrate your commitment to resolving the situation.
5. Regularly reconcile your report
Regularly compare the information in your aging report with the corresponding data in your general ledger to identify and resolve any discrepancies. This routine check helps to catch errors or irregularities early, such as duplicated invoices or misclassified expenses.
6. Filter your report
Filter your AP aging report to highlight vendors to whom you owe the most money. By identifying these high-value payables, you can prioritise which vendors require immediate attention and explore potential payment arrangements.
7. Implement a tracking system
Implementing a tracking system helps you keep a close watch on all due dates associated with outstanding invoices. By consolidating payment deadlines in one place, you reduce the risk of missing important dates and ensure that payments are processed on time.
8. Use accounts payable automation software
Automation tools can categorise payables based on their age, automatically sorting invoices into different aging periods. This automatic categorisation ensures that invoices are accurately tracked and organised.
An Aging Report Is Best Done With Automated Accounts Payable Software
Leveraging accounts payable software transforms the process of preparing an aging report in finance, offering a more streamlined and insightful approach to managing your payables.
With automation, you’ll have an easier time when managing cashflow because of the enhanced visibility and control over your financial obligations.
