What your aged debtors report tells you about late payers

Is late payment a constant theme in your business? Do clients frequently take longer than their agreed terms to settle an invoice? 

And, if you’re honest, do you definitely know the answer to either of those questions? In this series of blogs, we’ll examine the key financial reports needed to manage a business. Following last month’s exploration of the bank reconciliation report, this blog explains the warning flags to look out for when reviewing your aged debtors report. You’ll also find practical tips to overcome problems; we hope you find it helpful.   

 

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

The aged debtors report provides an overview of clients you have billed and shows the amounts that are outstanding. It’s usually broken down into columns which denote time periods. For example, ‘current’, ‘30 days’, ‘60 days’, and ‘greater than 60 days.’ 

Your aged debtor report gives an at-a-glance view of money owed to the business – money that is sitting in someone else’s bank account when it should be in yours! As with the bank reconciliation report, review it regularly so you’re aware of where the business is financially and any problems on the horizon.  

 

How to spot warning flags on your aged debtor report 

There are two major things to look out for: debt over agreed terms and negative balances.  

For example, if your agreed terms state that invoices should be paid 30 days from the date of the invoice then anything older than this is a warning sign. Payments that are very late are particularly concerning; if your invoice is past 60 days, this is a definite red flag. The longer an invoice is unpaid, the more interest you are losing out on and the greater the chance of it becoming a bad debt.  

Keep a watch on negative balances also. Depending on your accounting software, a negative balance may appear on the report as: 

  • A figure with a minus before: -£1,000 
  • A figure inside brackets: (£1,000) 

However they appear, there should be very few negative balances on the report. A negative balance could mean that the client has paid before you have raised an invoice; or, your finance team (FT) has issued a credit note which has not been matched to the payment.  

 

What to do if you notice problems with your aged debtors report 

With debts greater than agreed terms, ask your FT to check if payment has been received. If not, chase the invoice immediately. Prioritise the oldest invoices first as these are the biggest concern – begin with outstanding amounts greater than 60 days and work backwards.  

Analyse your aged debtors reports to spot patterns: are there clients who habitually pay late? If yes, deploy credit control and find a way to build relationships and encourage them to pay on time. 

If you notice that there are a lot of negative balances on your aged debtors report, there could be an issue with organisation. Encourage your FT to keep on top of things and consider if additional help is needed. For your part, review your aged debtor report often, along with your bank reconciliation statement, so you have a clear picture of the business’ finances.  

 

Don’t ignore your aged debtors report 

It’s a crucial tool to understand the financial health of your business; review it frequently. Late payments are a real problem for small businesses. Estimates vary, though figures published by Tide before the pandemic suggest that small businesses chase £8,500 worth of unpaid invoices at any time. This isn’t just time-consuming, it jeopardises those business’ stability long term.  

Even if late payments are not an issue for your business, a FT that is in control is essential. Our guide, Why your business isn’t as profitable as you think, has practical information to help business owners get the best from their finance team. Download the guide for a thorough overview of the aged debtors report, as well as five other critical financial reports you need to understand and keep an eye on. 

Need help with your finance team? Call us on 0117 244 1891. 

 

 

Photo by Aaina Sharma on Unsplash