Accounts Payable Aging Report: Meaning, Uses, How to Generate, Analysis

Accounts payable (AP) is the amount a company owes to its suppliers. It is listed on the balance sheet under current liabilities. Furthermore, an accounts payable ageing report lists all the bills and invoices a business owes, broken down by seller and due date.

Continue reading as we discuss what are these reports and why are accounts payable ageing important.

What are accounts payable ageing reports?

An accounts payable ageing report is an accounting document that summarises a company's bills and invoices by the vendor and due date.  It organises payables to suppliers into time buckets — commonly set up with 30–day periods.

To help you understand better, here is an accounts payable ageing report example:

accounts payable ageing report

As of <date>

Benefits of an accounts payable ageing report

An accounts payable ageing report is a valuable tool that can help you to improve your cash flow management, identify and prioritize overdue invoices, negotiate better terms with vendors, avoid late payment penalties, and identify potential problems with your accounts payable process. Here are some benefits of accounts payable ageing report:

• Inspect the report before payment for any problems, such as duplicate invoices.
• Improve accuracy by reconciling AP ageing vendor balances with vendor statements received and general ledger transactions.
• Plan and schedule vendor invoice payment dates for optimal cash flow and financing.
• Use it to forecast accounts payable balances and the business’s cash flow.
• Identify early payment discounts and avoid late payment penalties to save money.

Components of an accounts payable

The components of an accounts payable ageing report depend on the company creating it, but the most common categories include:

• Vendor name
• Amount owed 
• Due date 
• Payment terms 
• Past-due accounts 

How to prepare an account payable ageing report?

Here is a step-by-step guide on how to prepare accounts payable ageing report: 

1. Organise your report: Begin by categorising the data into three groups — the suppliers you owe payables, due date, and outstanding amount. 
2. Sort your outstanding invoices into 30–day categories: Ideally, the top column should reflect sums with the closest due date. Invoices that are 1–30 days past due should go in the second column, and so forth. 
3. Filter your report: Highlight the vendors you owe the most money to; this will assist you in identifying opportunities to negotiate payment arrangements with certain vendors. Additionally, highlight the amounts that must be paid right away to prevent bad debt.
4. Routinely update your AP ageing report: Review your report monthly and make necessary changes. For example, when you pay an invoice in whole, it's best to remove that amount and supplier from the report. 

What is the ageing schedule for accounts payable?

Ageing schedules are used by businesses to identify which invoices are past due and which clients they should contact for payment reminders or, if they are too far behind, transfer to collections. Usually, an ageing schedule will classify accounts as follows:

• Under 30 days (current)
• 1–30 days past due
• 30–60 days past due
• 60–90 days past due
• More than 90 days past due

By categorising pending obligations by their earliest to latest due dates and projected income by the number of days since invoices were delivered, these schedules can also assist businesses in forecasting their cash flow. 

Why is an accounts payable ageing report required for an audit?

An accounts payable ageing report is required for an audit because it gives auditors a detailed overview of the company's debts. This information helps auditors assess the company's financial health and identify potential problems.

Here are some reasons why are accounts payable ageing important for an audit:

• Verify the company's accounts payable balance: The ageing report shows the amount of money the company owes to vendors and how long it has been since each invoice was due. 
• Find any possible problems with how the company pays its bills: For example, if the ageing report shows a sudden rise in the number of past due bills, this could be a sign that something is wrong with how the company buys things or manages its vendors.

How often should an accounts payable ageing be reviewed?

The accounts payable ageing report should typically be run and examined every month. This will help you determine whether you are using credit responsibly or relying too much on it.

The monthly review of an AP ageing report also gives you a chance to identify any problems right away so that you may take action to fix them.

How can accounts payable ageing be improved?

Managers often use ageing schedules to evaluate the business’s operational and financial success.  This is why these reports need to be maintained, and here are some tips to help you improve your accounts payable ageing:

• Automate the accounts payable ageing process.
• Review your accounts payable ageing report regularly. 
• Create a workflow for processing invoices.
• Establish clear payment terms with your vendors.

Difference between accounts payable vs accounts receivable ageing report

An accounts receivable (AR) ageing report is the opposite of an ageing accounts payable report—one shows the customer invoice, while the other shows the seller invoice. 

Instead of showing what you owe, an accounts receivable ageing report shows the amounts of unpaid customer bills sent with credit terms. It gives information about the credit you give customers when they make a purchase.