Why are Aged Creditors Reports important for business today?
An aged creditors report is an important part of tracking the health of your business by providing:
- An understanding of how much money you owe at any one time divided according to how long the amount is outstanding
- The parties to whom you owe the most or to whom the amounts have been outstanding the longest
- Which parties owe you the most in terms of credit notes
- The typical billing terms you are subject to from your suppliers to determine whether increased purchases should be made with suppliers that offer better terms in order to improve the overall cash flow cycle of the business
- The credit limits your suppliers have you subject to
- An ability to compare the terms you receive relative to industry norms to determine whether improvement in these metrics should be expected
Why are Aged Creditors Reports important for an event tomorrow?
Potential investors in any transaction will be keen to understand how the business ensures revenue earned is converted into cash flow into the business as soon as possible. But it is also important to understand how quickly costs incurred are converted into cash flow out of the business. Any improvements in this area can increase the speed of cash flows through business and therefore improve valuation or the ability of the company to service its debts.
An aged creditors report is invaluable in this regard is it provides precise detail of:
- How long it takes your business to pay the invoices it receives
- What proportion of your suppliers are due debts that have been outstanding for an extended period
- These metrics can then be used to compare the business to other similar companies in paying invoices
Pros of addressing Aged Creditors Reports
- Knowing how long your debts have been outstanding
- Understanding the terms you are under with each of your suppliers
- Compare your terms and payment performance to industry norms
Cons of not addressing this topic
- Greater potential to incur penalty interest on outstanding debts
- Inability to improve the cash cycle of the business by prioritizing suppliers that offer the best terms
- Inability to compare terms received and payment timeliness against industry norms and best practice