If you’re a small business owner, you probably make purchases for your business on credit. Sometimes, it’s hard to know when money is owed to different suppliers. To organize business debts, use an accounts payable aging report.
What is accounts payable aging report?
An accounts payable aging report shows the balances you owe to others. The debts consist of inventory, supplies, and services you buy to operate your business. The aging of accounts payable tracks who your creditors are, how much you owe, and how long you’ve owed debts.
An AP aging report is a tool that organizes your business’s accounts payable (AP) balances. Accounts payables are amounts you owe to vendors. You incur payables when you receive a good or service on credit. The supplier invoices you, and then you pay them on a later date.
An accounts payable aging report helps you visualize amounts you owe. The report is the opposite of an aging of accounts receivable report. An AR aging report shows the balances of money owed to your business. Accounts receivable includes credit you extend to customers when they buy from you.
Using an accounts payable aging report gives you an easy way to handle your debts. As a small business owner, you need to know how to create and manage an aging accounts payable report.
Parts of the aging of accounts payable report
An accounts payable aging report consists of columns that organize debts you owe to vendors. The first column lists the names of your suppliers, which are companies that provide goods and services to your business. Each supplier is listed in its own row on the report.
The columns that follow categorize debts based on the age of an invoice. Each column represents a time frame after you receive a bill. Usually, the columns go by 30-day increments:
- Current (0 to 30 days old)
- 1 to 30 days past due (aged)
- 31 to 60 days past due (aged)
- 61 to 90 days past due (aged)
- Over 90 days past due (aged)
The first column after supplier names shows current balances. The invoices in the current column are zero to 30 days old. Record the balance of new supplier orders placed within the last 30 days here. The balances in the current column are not past due.
The following columns list invoices that are over 30 days old. Usually, these invoices are past due. Group aged balances by 30-day intervals, starting with the least past due.
An accounts payable aging report keeps a running balance of amounts you owe to suppliers. When you buy on credit, you might end up owing a supplier for several transactions. The far right column lists the total amount you owe each supplier.
The bottom row of the aging report shows the total balance of each aging column. That way, you can see the total current amount due as well as how much you owe past due.
Example of an accounts payable aging report
Use the following sample accounts payable aging schedule as a guide. Depending on your business’s needs, you might need to alter the report.
Take a look at how an accounts payable aging report is used with this example. The business lists its suppliers, current amounts due, and past due amounts.
The value of an AP aging report
An accounts payable aging report is a great tool for managing small business debts. Here are just a few ways you can benefit from maintaining an AP aging report:
- It helps you handle cash flow and time payments. Use the report to see which suppliers need to be paid now and which invoices you can hold off on.
- It makes planning future expenses simpler. Create a business budget for your expenses with an aging report.
- You can catch accounts payable issues quickly. By reviewing the aging report at least once a month, you can see if you make payments on time or rely too much on credit.
- You find opportunities to negotiate invoice payment terms. If you usually pay a supplier before the due date, see if you can get a discount for early payments. And if you struggle to pay a supplier on time, ask about extending the due date.
Things to keep in mind with an accounts payable aging report
An AP aging report can help you manage business debts, pay invoices on time, and manage an efficient accounts payable process. But, there are several things you need to pay attention to when using the report.
Most reports show the age of the invoice, not the supplier’s terms. The generic model for an accounts payable aging report assumes all invoices are due within 30 days. But, you might have invoices with lower or higher due dates. You need to be aware of your suppliers’ credit terms to avoid late payments.
You also need to make sure that you regularly update the aging report. If you pay an invoice, remove the amount from the report. If an invoice goes unpaid over 30 days (or past the due date you use in the column), move it to the next aging column. Keep information on the accounts payable aging report up-to-date and accurate.
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