Marita Bon Article

Marita Bon Article
Picture of Marita BonMarita Bon, executive editor and co-owner of Bon's Eye Marketing, has more than 23 years of business, news and corporate writing experience. The founding editor of Wilma!, Wilmington, N.C.'s only women's magazine, she has contributed extensively to area newspapers and business journals.

Keep the Cash Flowing, Run Those Aging Reports

Keep the Cash Flowing, Run Those Aging Reports

“The money’s got to be out there. We billed thousands the last couple months, but we were tight again, right around payroll time.”  I heard this sentiment, or something close to it, more than once at a recent small business meeting. I remember wondering if the grumblers knew exactly who owed them, how much they owed and when they could expect payment.

In our company, we have that information at our fingertips, mostly because we run weekly accounts receivable aging reports.

By definition, an aging report classifies a firm’s receivables according to time periods that invoices have remained unpaid. There are six good reasons to run these documents on a routine basis. An aging report allows you to:

  1. Identify which customers are late in payments
  2. Determine average turnaround times between invoicing and payment dates
  3. Assess credit risk for individual customers
  4. Assess your company’s health based on collection rates
  5. Identify and track problems that may be impeding cash flow
  6. Begin revenue collection on prime offenders

Most accounting software can generate aging documents, and a number of good templates are available online. For a thorough report, set up your spreadsheet in 30-day increments:

  • Column 1: Name of each customer holding an accounts receivable balance
  • Column 2: Total amount due from each customer listed in Column 1
  • Column 3: The current column, or amounts due from customers for sales/transactions completed in the current month
  • Column 4: Outstanding amounts for customer sales/transactions completed in the previous month, deeming them one to 30 days delinquent
  • Column 5: Outstanding amounts for customer sales/transactions completed in the previous month, deeming them 31 to 60 days delinquent
  • Column 6: Outstanding amounts for customer sales/transactions more than 60 days delinquent

Once you’ve plugged in your data, consider how to address each client on a case by case basis. For instance, you can start by listing accounts according to those who have paid on time, followed by those who took 30 days, 60 days and up. Next, decide who you will pursue first.

Conventional wisdom suggests that going after the most delinquent cases will yield the greatest return, but a word of caution – these can be the toughest to make good. Besides involving collection agencies, extremely late customers also may be unlikely to pay at all without litigation.

Along with your financial manager, devise a plan detailing your collection strategy for all late cases. Questions to consider: How will you make initial contact with the client – phone, email or mailed notice? When and how often will you follow up? If need be, do you have the means and willingness to take clients to court?

At the very least, when a high percentage of your customers are slow in paying their bills, you should re-evaluate your credit and collections policies and make some changes. A colleague of mine, for instance, works in an industry notoriously bad about meeting financial obligations. He uses his report to identify the guilty parties and calculate their delinquency rate. For those clients, he requests an upfront deposit of 50 percent before he’ll accept the job.

However you use your aging reports, be consistent about running them. Every time you skip a week, month or more, you’re letting money ride that could be working for your business and your staff. Worse still, the longer a client’s account is delinquent, the less likely you’ll be able to collect.