What Is an Aging Schedule?
An aging schedule is an accounting table that shows a company’s accounts receivables, ordered by their due dates. Often created by accounting software, an aging schedule can help a company see if its customers are paying on time. It’s a breakdown of receivables by the age of the outstanding invoice, along with the customer name and amount due.
- Aging schedules are accounting tables companies use to see whether payments are being made or received in a timely fashion.
- These schedules can be customized to include whatever time frame the company wants to track, but commonly include under 30 days, 1-30 days past due, 30-60 days past due, and more than 90 days past due.
- Using aging schedules can help companies spot cash flow problems before they become an even bigger issue.
- Aging schedules can help companies spot problems with their credit policies.
How an Aging Schedule Works
An aging schedule often categorizes accounts as current (under 30 days), 1-30 days past due, 30-60 days past due, 60-90 days past due and more than 90 days past due. Companies can use aging schedules to see which bills are overdue and which customers it needs to send payment reminders to or, if they are too far behind, send to collections. A company wants as many of its accounts to be as current as possible because the longer the account is delinquent, the likelier it is it will never be paid, leading to a loss.
Here’s an example of an aging schedule:
|Aging Schedule Example|
|Customer||Total Due||Current (under 30 days)||1-30 days past due||31-60 days||61-90 days||Over 90 days|
A company may experience financial distress if it has a significant number of past-due accounts. It may need to borrow money to stay afloat because of the unpaid accounts. That will affect the company’s bottom line even further because it will be responsible for paying interest on the money it borrows. Every day a payment is overdue will have some sort of impact on a company’s financial position, and every account that is late multiples that impact.
The longer past due an account goes the more doubtful it is that payment will be received. Aging schedules allow companies to stay on top of A/R in hopes of limiting doubtful accounts.
Benefits of Aging Schedules
Aging schedules are often used by managers and analysts to assess a business's operational and financial performance. They are particularly helpful for working capital management. Aging schedules can help companies predict their cash flow by classifying pending liabilities by the due date from earliest to latest and by classifying anticipated income by the number of days since invoices were sent out.
Cash flow is important to a business because many businesses fail due to negative cash flow. That’s why tracking the cash flow is a crucial element of maintaining a healthy and successful business. Besides their internal uses, aging schedules may also be used by creditors in evaluating whether to lend a company money.
In addition, auditors may use aging schedules in evaluating the value of a firm’s receivables. If the same customers repeatedly show up as past due in an accounts receivable aging schedule, the company may need to re-evaluate whether to continue doing business with them. An accounts receivable aging schedule can also be used to estimate the dollar amount or percentage of receivables that are probably not able to be collected. That can allow a business to be proactive instead of reactive.
By knowing the percentage of receivables that might be uncollectible, the business can look for solutions to their cash-flow issue before the problem spirals out of control. For certain industries, such as retail or manufacturing, aging schedules can play a significant part in setting credit standards. If a company notices it has a consistent problem with a large number of delinquent accounts, it may look at raising its standards when it comes to a customer’s credit score.