An aged trial balance report is a financial statement that lists all of a company’s outstanding receivables from its customers. It sorts the information by how long each receivable has remained in past-due status. The purpose of an aged trial balance report is to provide visibility into which receivables are at risk of not being collected and to help prioritize collections efforts.
How Does an Accounts Receivable Aged Trial Balance Report Work?
Accountants typically organize the report into 30-day increments. It shows the total amount outstanding for each increment. The accounts receivable team can customize the report to display additional information, such as the customer name, invoice number, and original invoice date. This information can help you determine why a receivable is overdue and develop a plan to collect it.
What Are the Benefits of Using an Aged Trial Balance Summary Report?
Experienced accountants view aged trial balance information as crucial information. It provides powerful benefits in conjunction with other key performance metrics, such as days sales outstanding. The report identifies at-risk receivables, so your team can change or personalize collection strategies wherever necessary. Your workers can also use this information to focus collections efforts on specific accounts.
Additionally, the report showing aging accounts offers insights into customer behavior. Your team can use this information to develop targeted marketing campaigns to improve customer relationships. Your sales team can also use the information to target customers who match the criteria you identify as correlating with lower default risks.
Finally, the report offers valuable data for forecasting future receivables and cash flow. This information can help you make successful investments, plan for expansion, and take strategic initiatives. For example, if you realize your largest customer has not yet paid its bill, you might delay purchasing plant equipment.
What Are the Challenges of Aged Trial Balance Accounts Receivable?
While aged trial balances are extremely useful, they do have some challenges. Knowing what these are ahead of time provides your A/R team with the information they need to address them before they become big problems:
- The report can be time-consuming to generate. If your accounting software does not have a built-in aged trial balance summary report, your team will need to create one manually. It can be time-consuming, particularly if you have a large number of receivables.
- The information can be challenging to interpret. Accounts receivable aging reports often include a lot of data. You might have difficulty identifying trends and taking action based on the information. AI can simplify this task.
- The report can be misleading. The report only shows information about overdue receivables. It can give you a false sense of security about the health of your remaining receivables. For example, if all of your receivables are current, but you have a high number of invoices close to being due, the aged trial balance will not show this.
How Can Gaviti Reduce the Accounts Receivable Trial Balance?
Gaviti automates the creation of aged trial balance reports so that your team can focus on tasks that require creativity and strategizing. Our software also automates other aspects of the collections process, such as invoicing customers, sending follow-up reminders, and offering payment options.
With these and other menial tasks off their plate, the accounts receivable team can focus on fine-tuning their lending criteria and improving their dunning strategy. They can also liaise with other strategic functions of your business, such as sales and marketing, to ensure all departments work together to target ideal customers.
Are you ready to get these and other benefits for your business? Book your free demo today.