Often as a company scales, so does its debt. This doesn’t necessarily mean things are in bad shape; it just means that more business comes more inventory which brings more frequent bills from vendors. Bookkeeping — as stodgy as it sounds — becomes a critical element to keeping any business alive and its cashflow moving smoothly.
An Accounts Payable Aging Report, sometimes shorthanded to “A/P Aging Report” is a method of accounting that itemizes all of a business’ accounts payable. An aging report offers a systematic way of keeping track of bills, invoices, bank credit, or loans, especially as those dues arrive from different vendors and on different payment schedules.
The ultimate goal? Lose as little money to interest as possible by paying off what matters the most, first.
Glad you bravely asked. Accounts Payable is basically all the money that a company owes to its vendors or suppliers. (It’s a number you don’t want to see get too high for too long). When a company buys inventory, materials, or goods, for example, an accountant might log those purchases as A/P. They might also choose to do this at the time of invoicing. The figure is Accounts Payable if it hasn’t yet been paid.
Generally speaking, Accounts Payable should not be too feared — just tamed. Most A/P is a short-term liability, which is generally paid away within the term of one year.
For a lot of companies, the primary challenge of Accounts Payable is scale. Vendors invoice on differing schedules, and require payment at different times. Loans and bills come with a myriad of interest rates and fees. Prioritizing all of these payments can lead to things getting complicated, fast. That’s where an A/P aging report comes in.
Think of an A/P Aging Report like a snapshot into what you owe at any given point in time. Varying interest rates and payment schedules can affect your liability over time, so an effective A/P Aging Report is helpful to synthesize your outbound finances.
Traditionally, A/P Aging Reports bucket invoices by the dates in which they’re owed. In doing so, the report should sort A/P by how far overdue or “aged” they are. Since most invoices come around in 30-day increments, a baseline A/P Aging Report might categorize bills into the following timeframes:
What is essential for any A/P Aging Report is to include the consequences of delayed payment. It would seem that payables overdue for months would incur more debt than those overdue by weeks, but this is not always the case. Financial teams must build their A/P Aging Reports to precisely account for the other variables.
Keeping your accounts payable in order can feel like juggling a million balls in the air (hopefully you don’t have a million outstanding invoices, though).
Although the process of A/P management can seem somewhat daunting, there are actually some easy-to-follow, generalized guidelines for staying up-to-date with your financial affairs and setting your company up for success.
In life, if you see something, you should say something. However, in an organization, you should instead say something if you see a new payable account is created. What we really mean is that immediately logging new payments into your A/P aging report will keep your records as current as possible.
Not only will you be able to resolve accounts sooner, but having your credit well documented will give you a clear snapshot of what has yet to be paid off so you can avoid added fees.
Seemingly obvious and yet incredibly important, having a trustworthy relationship with your vendors is essential to your company’s credibility and overall financial health.
In a chicken-egg fashion, that trust actually comes from a well-organized accounts payable system. How, you ask? In our own terms, a company is only as good (or trustworthy) as its ability to pay vendors on time. When vendors get paid on time, it not only ups the likelihood of their continuing to partner with your company, but it also provides some wiggle room for when you need a little extra time on closing out an invoice.
“A bargain bin for accounts payable?!” Well, kind of.
It’s not all about spotting the big interest rates and fees; sometimes it’s about discovering discounts, too!
Companies have the opportunity to look for discounts when it comes to their accounts payable. You heard us! Some vendors or banks (the ones you have a good relationship with, remember?!) offer discounts for early payments. While the discounts might seem negligible, they can add up pretty quickly to some significant savings over time. Obviously, this is only worth taking advantage of if your company is financially in a stable place to pay invoices out early.
In the same way you likely have an alarm set for the priorities in your personal life, it can be a gamechanger to set reminders to pay off invoices at specific times.
Benefits include zero headaches.
Setting reminders is super easy, and can be created with a calendar, an app, or a software tool like Settle to ensure that the accounts are paid on time.
Settle pays your vendors upfront so you don’t have to. This means you’re able to cut through your Accounts Payable at a faster rate, and consolidate what you owe into a streamlined, more comprehensive payment.
It can be difficult for a small business (or a large one!) to keep track of every single invoice or bill they owe. That’s why so many payers turn to Settle to handle their Accounts Payable. Get organized, get your cash flow moving, and get your people paid by visiting Settle.co and starting an account.