Accounts Payable Aging Report: A Complete Guide for Financial Management

Tracking payables is a must for the smooth running of your company. Paying vendors on time helps build trust and makes you an attractive customer to do business with. An accounts payable aging report enables this, by helping you organize and prioritize payments to vendors. An accounts payable aging report breaks down outstanding payments by vendor and categorizes them based on time buckets. This helps in gaining a complete view of what bills are pending, how much is owed and how long the amount has been owed, thereby helping you manage payables better. 

Understanding Accounts Payable Aging Reports

Accounts payable aging report is typically created by considering all vendor transactions. These transactions are then categorized according to the vendor. Most aging reports generally use periods in increments of 30 days, such as 1 - 30 days, 30 - 60 days, 60 - 90 days, and over 90 days. Some organizations also track bills which are due for a period of 90 - 120 days. 

The amount of outstanding payments for each vendor is then mentioned in each column, along with an aggregate value. 

Accounts payable aging reports list outstanding invoice details such as invoice number, invoice date, due date, PO number, and credit note number, if any. Some detailed reports also contain subcategories, amounts past the due date, and line item grouping. 

Accounts Payable Aging Report Vs. Accounts Receivable Aging Report

The main difference between accounts receivable and accounts payable aging reports is who owes the money to whom. An accounts receivable aging report helps track the value of overdue invoices owed to your company by your customers. Accounts receivable aging report is also essential for ensuring healthy cash flows by enabling timely follow-ups for payments. An increase in cash flow will allow you to pay your vendors timely, allowing a healthier AP aging report. 

How to prepare an AP Aging Report

An AP aging report is prepared by categorizing outstanding invoices based on vendors and due dates and aggregating invoice amounts across each column. The total amount is then calculated for each row and column. This report analyzes cash flow and determines which vendors must be paid first. It is also advisable to watch for early payment discounts when deciding on payments. 

Some tools used to prepare AP aging reports are: 

Spreadsheets

Spreadsheets are basic tool for manually preparing the accounts payable aging report. Data can be added from invoices and credit memos, and use spreadsheet formulas to calculate the total amount due. This method is commonly used by organizations that process accounts payable manually or by smaller businesses that have a low invoice volume. While using spreadsheets for generating reports is a standard method, it can be susceptible to errors. 

ERP Software

Enterprise Resource Planning software is often used to manage an organization's financial, human resources, and other administrative functions. Some ERP software like SAP, Oracle Netsuite, Microsoft Dynamics or QuickBooks also provide ready-to-consume AP aging reports. These can then be analyzed to plan cash-flow and improve decision-making. 

AP Automation software

Some AP automation software also prepares AP aging reports in real-time, like ClearTech. With all invoice data added to such cloud-based software, cumbersome data entry can be skipped and reports can be generated on-the go. 

Types of transactions in an AP Aging Report

All vendor transactions are considered when preparing the aging report. 

1. Vendor invoices: Invoices that have been billed against goods or services supplied by the vendor and are due within the current payment period or are overdue. 
2. Credit memos: These are credit adjustments from your vendor. Credit memos are incorporated to adjust against payment discounts or return of damaged goods and reduce the total amount owed to a vendor. 
3. Advance Payments: If any amount is paid to a vendor in advance, for goods not yet delivered or services not yet received, such amounts also feature in the report to reduce the amount owed to a vendor.

Benefits of AP Aging Reports

AP aging reports can provide you with a myriad of benefits. 

Better cash flow management

AP aging reports can help you have a view of all your outstanding payables and, in turn, manage cash expectations. Knowing how much you must pay can help you better prepare and budget your finances.

Pay vendors on time

AP aging reports show how much a vendor has to be paid and for how long the payments have been due. This will help you settle your debts before due dates and avoid any associated late payment fees. 

Improve vendor relationships 

Keep invoices from getting past the due date, and minimizing the over 90 days column will help your vendor gain trust in you. This leads to better vendor relationships and will improve your accounts payable turnover ratio, that can help you attain the trust of stakeholders. 

Detect payment discrepancies

Preparing AP aging reports regularly can help you notice any payment discrepancies and rectify them as soon as possible. Comparing AP aging reports with bank transactions can help identify any errors committed by your AP team or vendors. This enables AP teams to generate credit memos in time to tackle any incorrect payments. 

How ClearTech can help

AP aging reports can be managed and prepared in real time with ClearTech’s Reports. You can get a complete view of your AP process, like the percentage of bills paid on time, time from received to posted, adherence to approval policies, and aging of overdue invoices. You also get to track approval turnaround time to speed up your AP processes. 

ClearTech also helps you avoid paying invoices late by automatically creating payment runs based on method and due dates and suggesting the correct time to pay an invoice. Manage your cash flow better by having a complete view of your vendor spends alongside allocated budgets and implementing suggested saving insights. 

Accounts payable aging report serves an important role in improving cash flow and vendor relationships within your organization. Paying your vendors timely can help prevent any future issues and get you better value for your money. Consider investing in a smart accounts payable automation software to streamline your payables process and save money.