The accounts receivable aging schedule is a useful tool for analyzing the makeup of your accounts receivable balance. Analyzing the schedule allows you to spot problems in accounts receivable early enough to protect your business from major cash flow problems.
The aging schedule can be used to identify the customers that are extending the time it takes to collect your accounts receivable. If the bulk of the overdue amount in receivables is attributable to one customer, then steps can be taken to see that this customer's account is collected promptly. Overdue amounts attributable to a number of customers may signal that your business needs to tighten its credit policy towards new and existing customers.
The aging schedule also identifies any recent changes in the accounts making
up your total accounts receivable balance. Almost every business has to deal
with customers that are slow to pay; you should expect the same for your
business. However, if the makeup of your accounts receivable changes, when
compared to the previous month, you should be able to spot the change instantly.
Is the change the result of a change in your credit policy? Was the change in
accounts receivable caused by some sort of billing problem? What effect will
this change in accounts receivable have on next month's cash inflows? The
accounts receivable aging schedule can help you spot these problems in accounts
receivable, and provide the necessary answers early enough to protect your
business from cash flow problems.