Accounts receivable aging schedule

Definition

An accounts receivable aging schedule is a report that categorizes a company's accounts receivable according to the length of time an invoice has been outstanding. It helps businesses identify overdue payments and manage credit risk.

5 Must Know Facts For Your Next Test

1. The aging schedule is typically divided into intervals such as 0-30 days, 31-60 days, 61-90 days, and over 90 days.
2. It assists in assessing the effectiveness of a company’s credit and collection policies.
3. A higher proportion of receivables in older age categories may indicate potential cash flow problems.
4. The aging schedule aids in identifying specific delinquent customers for follow-up actions.
5. It is an essential tool for financial planning and maintaining adequate working capital levels.

Review Questions

• What are the typical time intervals used in an accounts receivable aging schedule?
• How can an accounts receivable aging schedule help in managing credit risk?
• Why is it important to monitor the proportion of receivables in older age categories?

Related terms

Trade Credit: The agreement between businesses to buy goods or services on account, paying the supplier at a later date.

Working Capital: The difference between a company’s current assets and current liabilities, used to measure its short-term financial health.

Receivables Turnover Ratio: A financial metric that measures how efficiently a company collects its accounts receivable.