Aged Receivables and Payables
A business can make a profit but still struggle to pay its bills. This often happens because sales and expenses are recorded before the related cash is received or paid.
Aged receivables and aged payables reports show the outstanding amounts, helping understand short-term cash flow.
What Are Aged Receivables?
Aged receivables show money owed to the business by customers. They may also be called aged debtors, trade debtors or customer balances.
The report groups unpaid sales invoices by age, such as:
- Current or not yet due
- Up to 30 days overdue
- 31 to 60 days overdue
- 61 to 90 days overdue
- More than 90 days overdue
The report highlights invoices that need chasing, customers who pay late, disputed balances and possible bad debts.
For example, a business may report £50,000 of sales but have £20,000 still unpaid. The income may appear in the profit and loss account, but only £30,000 has reached the bank.
What Are Aged Payables?
Aged payables show amounts the business owes to suppliers. They may also be described as aged creditors, trade creditors or supplier balances.
The report identifies:
- Supplier invoices approaching their due dates
- Overdue or disputed invoices
- Duplicate bills or missing credit notes
- Payments that have not been matched correctly
- Cash needed during the coming weeks
Paying suppliers late may offer temporary relief, but it can damage relationships, reduce credit limits or lead to suppliers requesting payment in advance.
Why Should Both Reports Be Reviewed?
The two reports should be considered together. A business might be owed £30,000 and owe suppliers £20,000, but still face difficulty if customer debts are old while supplier payments are due immediately.
The age and likelihood of collection matter as much as the total balance. This is one reason why profit and cash flow are not the same.
Keep the Reports Accurate
Customer receipts and supplier payments must be matched to the correct invoices. Otherwise, paid invoices may continue to appear outstanding. Duplicate invoices, unrecorded credit notes and unreconciled bank transactions can also make reports unreliable.
Regular bookkeeping and suitable accounting software help maintain accurate balances. Many businesses should review aged reports monthly, while businesses with tighter cash flow may need weekly reviews.
GMS Accountants provides bookkeeping and management accounts for businesses in Cambridge and Nottingham. Contact us for practical help understanding what customers owe and what your business needs to pay.
