Getting Insight Out of Your AR Aging Report - Without a Crystal Ball

Nicole Dwyer

Every accounting program can create an accounts receivable (AR) aging report — unless you’re keeping your books like Bob Cratchit in a dusty Dickensian ledger. Depending on your app or software, you can change the parameters of the report, the aging buckets, and how granular the details are. It’s easy to get bogged down in creating the perfect report, but what matters more is how you use it.

The intent of the accounts receivable aging report is to predict cash flow so you can manage business expenses and financial activities with greater precision. It’s a tool — and one you should know how to use effectively.

Leveraging Your AR Aging Report

Crafting the accounts receivable aging report is the beginning of the process, not the end. Think of your AR aging report like test results from your doctor. You don’t want the doc to say your iron levels are low without providing any solution. You want to know the underlying cause and how you can restore your health.

The same goes for expectations around the AR aging report. You need to be able to tell stakeholders which customers are paying past credit terms, why the accounts are overdue, and what you’re going to do to collect the money and prevent future delinquency.

With your AR aging report as the starting point, you should:

  • Identify key performance metrics and key performance indicators and look for trends.
  • Curate external information to pull into the report..
  • Develop actionable intel for stakeholders.

Trendspotting Beyond the Metrics

While it’s important to do the math, and produce relevant and informative key performance indicators, you can spot trends beyond these clever calculations. For example, days sales outstanding (DSO) tells you how long it takes, on average, for clients to pay you. That’s helpful, but because it’s a companywide metric, DSO isn’t informative at a client level.

If you were trendspotting what’s behind this metric at a granular level, you might notice, for instance, that established customers pay on time, while newer customers tend to lag. Or you might observe a trend that buyers of a certain product line habitually pay more slowly. These tidbits of information might not emerge simply by assessing accounting stats.

The Story Behind the Data

With KPMs, KPIs, and trends in your crosshairs, you can flesh out the investigation and parse the story behind the numbers. If newer customers are paying slowly, do their credit terms differ from established clients’? Have market credit terms shifted such that your policies don’t align with competitors’, causing clients to push back by paying on a lag?

Are the accounts managed by one sales rep consistently delinquent? Are late-paying clients all invoiced by one AR team member? Is there a client that consistently pays late? If so, what do you know about their internal practices and policies? This is where you dig into the "why" and construct a narrative to explain the data.

Leveraging the Insights

With the data and the story behind it in hand, you’re ready to leverage your insights. How can you act on this intel? A systemic issue such as all clients paying slowly could mean you need a change in credit policies. Or, you might need to better educate clients on expectations.

If it's a misalignment between your accounts receivable and client AP timelines causing late pays, why not shift invoice dates? If you identify a staff member as the weak link, you might lighten their workload, incentivize them differently, and set firm expectations (and repercussions).

Automating Accounts Receivables is the Answer

As beneficial as these value-adds might be, you may wonder where you’d find the time to develop actionable insights while still accomplishing the day-to-day functions in your accounts receivable and collections departments. The answer is automation.

Most accounting apps and programs provide standard AR aging reports that can be drilled down at account level and parsed by date, but that's data without insight. You can calculate KPMs and KPIs by hand in Excel, but that's tedious and prone to potential errors. There’s a better way.

You need a solution that eliminates manual processes and guesswork. Consider the value of a tool to simplify your AR activities with predictive analytics, enhanced reporting tools, and automated collections. Contact YayPay for a free consultation today!




Nicole Dwyer
About the Author

Nicole Dwyer is Chief Product Officer for YayPay, bringing more than 10 years’ experience in accounts payable and receivable technology to ensure YayPay continues to meet the needs of its customers. Having spent her entire career in commercial payments, Nicole understands high- and low-value payment systems, the complexities of how businesses pay and get paid, and has worked with distributed teams spanning the globe. She is a graduate of Worcester Polytechnic Institute. Residing in New Hampshire with her husband, daughter, and son, they spend their time outdoors and creating new adventures.

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