Stay on top of cash flow forecasting: use your Aged Creditors Report to keep your business on track

Last updated 22nd March 2023

Do you really know who you owe money to?

Do you have any idea how much you owe your creditors, and when you are supposed to pay them?

If you don’t, you could be in for a surprise when they come knocking on your door asking for their money. Trying to run a business while chasing money to pay your debts isn’t much fun.

Good business is about having a three-sixty-degree view of income AND outgoings. Knowing what and who you owe is a vital part of this.

Along with the bank reconciliation and the aged debtors report, it’s the third of six key financial reports that you need to keep an eye on to successfully manage and grow your business.

So, how do you find out what you owe via your aged creditors report? What does a ‘good’ aged creditors report look like? Most important: why does it matter? This blog explains.


What is an aged creditors report and why is it important?

Your aged creditors report gives you an overview of the businesses that have invoiced you but haven’t yet been paid. Like the aged debtors report, it is split into columns and organised by time periods: typically ‘current’, ’30 days’, ‘60 days’.

The importance of the aged creditors report is its connection to your cash flow. More specifically, to forecasting your cash flow. Knowing what bills are due, and when, gives you the foresight to make decisions about how you spend, budget and prepare for any unforeseen circumstances. Forecasting your cash flow is vital for avoiding many of the issues that can cause a business to struggle or even go under.


Your aged creditors report: what to keep an eye on

There are two things to watch out for when reviewing your aged creditors report. The signage may differ dependent upon the financial system used but the key points are the same:

1. Positive balances – positive balances indicate money that you owe. These balances represent invoices that you have received. They have been processed onto your finance system, but have not yet actually paid. They are an invaluable part of forecasting your financial commitments.

2. Negative balances – negative balances can indicate a mis-match between payments that have been made and the corresponding invoices. If a payment has not been matched to the corresponding invoice it leaves the impression that money is still owed and so an additional payment may be made accidentally. The same thing can also happen if a credit note has not been correctly matched to an invoice. Both could lead to you overpaying a client which is never a good idea!


Neglecting your aged creditors report carries major financial risks

Financial housekeeping is probably not the match that lit your fire when you decided to start a business! The thought of reviewing financial reports is unlikely to float your entrepreneurial boat. Therefore it isn’t surprising that many business owners tend to forget to keep an eye on their finances beyond the very basics.

However, it does pay to have a team you can trust looking after your finances. It also pays to know what questions to ask them so they can play their vital part in the success of your business.

If payments are not properly matched it could lead to invoices being paid twice. If supplier credit notes are not properly allocated you could be overpaying your suppliers, or not recovering money that they owe you. This can tie up cash unnecessarily which is not only inconvenient; in the worst-case scenario you may not get the money back, which will hit your profit. Hopefully, your business relationships are good enough to avoid any such instances, but it is never a good idea to owe or be owed money beyond the minimum.


Don’t forget those older aged creditors in your report.

Bear in mind also that older invoices still need to be paid. If you don’t regularly check your aged creditors report, you could be caught out. You could end up chasing your tail as you are forced to pay older bills. Some invoices incur a penalty for late payment – another potential hit on your income. Finding the cash to clear old debt can cause you additional pressure when it’s time to pay staff. It can also leave you with less of a cushion for financial shocks.


Good financial management is good business

If your aged creditors report is not managed correctly, there are genuine risks. As with all of the reports we’ve looked at, staying on top of the aged creditors report helps you stay on top of your cash, make more profit and built a more successful business!

Make sense of the six financial reports you need to run your business effectively with the help of our free tool. It explains what to look out for, red flags to be aware of, and what to do about them. Download it here. And if all this feels like hard work (the kind that you don’t want to do!) or you feel you need to put a little more structure into your finance team, call us on 020 8191 2124.