Aging list: what is it and how does this tool help with financial control?
The financial routine of a business is full of data. Among so much information, the ordering of expenses and receipts is a facilitator for management. In this context, the aging list and its benefits emerge.
The solution, although simple, is quite powerful. Its ability to list outflows and inflows of the organization’s resources is a valuable tool for decision-making for managers in the finance department.
Check out what an aging list is and how to use it in financial control to optimize company management!
What is an aging list?
Aging list is a tool that classifies accounts payable and receivable in chronological order of maturity. Thus, it offers an organized view of the company’s financial movements, according to established deadlines.
Also known as an aging list, categorization is done according to the time that has passed since the invoices were issued. In this way, the order provides an immediate understanding of the situation of organizational finances.
What is the difference between aging list and cash flow?
As you can see, the aging list is related to a company’s accounts. Therefore, it becomes quite similar to cash flow, another relevant financial instrument. However, there are important differences between them.
Aging list focuses on ordering payments based on due date as seen. Cash flow, in turn, covers all movements in business finances over a specific period.
While the aging list highlights the status of accounts, cash flow offers a comprehensive perspective on liquidity. Therefore, it allows for broader planning, including various disbursements and receipts.
But remember: the tools are complementary and actively contribute to holistic and efficient control. In this way, the combination of the two instruments enables managers to identify opportunities for financial optimization and mitigate risks more effectively.
How does the aging list help with financial control?
Having clarified the similarities and differences in relation to cash flow, now it’s time to learn about the advantages of the aging list. Next, you will discover how the list contributes to the management of the company!
Assessment of the company’s financial health
The ordering of accounts payable and receivable offers a better view of organizational finances. Categorizing obligations based on time, the tool provides an instant understanding of your financial situation.
This way, managers have a quick-to-understand document that will help them identify risk areas. Furthermore, they can evaluate the effectiveness of credit policies and understand the dynamics of receivables more quickly.
Identification of collection opportunities
Another point that justifies the creation of this report is the highlighting of customers who demand immediate attention in relation to their payments. Therefore, the list becomes a strategic ally in identifying collection opportunities.
Chronological categorization enables proactive approaches to reducing default. Professionals can then direct efforts more assertively, recovering outstanding revenues.
Cash flow management
The aging list can work favorably in cash flow management , providing crucial insights into the movement of income and expenses. After all, clarity about invoice due dates helps to anticipate inflows and outflows of resources.
As a result, managers have relevant information for more efficient corporate financial planning. This is essential for the liquidity of the business, in order to avoid situations of insufficient cash.
What type of business needs the aging list?
Given the usefulness of the list’s numerous benefits, as presented, it has potential for use in different types of business.
In general, the aging list is recommended for companies that maintain complex relationships with many customers and suppliers, without specific dates for payments or centralization of collections. In this way, its adoption will be useful for organizing finances.
Furthermore, it is very valuable especially for retailers, whose daily transactions are frequent and relationships with partners vary depending on demand. In this context, the tool helps organize information, contributing to control.
Overall, it can be used strategically by different types of businesses. The decision to implement it depends on the volume of accounts, in addition to an analysis of the specific needs of each company.
How to build this report?
Now that you know the details, this is the time to understand how it works in practice. See below the steps for creating the report!
Detailed data collection
Start the process by collecting detailed data on due dates and payments, separating expenses and income. Then select groups and categorize them as paid, unpaid and due.
Pay attention to the specification of accounts, including details such as installments, cash payment, bank slip, deposit, suppliers, customers and the status of each transaction. This information is relevant for a broad understanding of the situation.
Organization and categorization
Immediately after collecting data, organize it logically, categorizing it according to the fields chosen to compose the table. The task can be done in an Excel spreadsheet , but financial management systems can be more agile and accurate for this purpose.
Then, divide the accounts into specific periods, such as 30, 60 or 90 days, and apply the division between inflows and outflows. Make sure the table structure is intuitive for users to understand.
Daily update
The work will have no effect if the list is out of date. So keep everything up to date. Constant updating will contribute significantly to ensuring that reports are based on real and recent data.
Data breakdown
Another point of attention is checking the data entered. Include specific information, such as interest rates, types of bills and other details. The level of detail will enrich the quality of the reports and help with the accuracy of financial control.
Preparation of reports
Finally, use the collected and organized data to create other reports. Highlight trends, variations and points of attention that could be useful for managers’ decision-making.