The usefulness of debtor aging reports to companies

The usefulness of debtor aging reports to companies
It provides an analysis report that allows the company to view how long debtors owe the company and the amount of debt.
It helps in making better decisions to mitigate bad debt risks.
The report categorizes the overdue amounts according to different timeframes, aiding in understanding the payment behavior of customers after the credit term.

Importance of the report includes:
i. Calculating and understanding the distribution of overdue amounts from customers.
ii. Understanding the duration of outstanding receivables.
iii. Identifying customers who have exceeded the credit term.
iv. Demonstrating a company's collection ability.
v. Estimating the portion of accounts receivable that may become bad debt.
vi. Assessing recoverable amounts and potential losses.
vii. Directly assessing the company's cash flow situation.

Demand for credit policy:
For a company, establishing a Credit Policy to manage credit sales is crucial. It allows the company to set appropriate credit terms with customers, enabling effective collection strategies.

Typical Credit Policy:
i. Conduct background checks on customers through credit rating agencies.
ii. Establish credit terms for sales initially (credit term).
iii. Negotiate with customers and reach agreements on credit terms and payment conditions.
iv. Include the agreed-upon credit terms as a clause in the contract. This is crucial and should be signed by both parties.
v. Sending invoices and reminders.
vi. Ensure proper documentation is provided after the customer receives the goods and is satisfied with the service.
vii. Prepare accounts receivable aging reports.
viii. Take proactive action to ensure collection from debtors.
ix.Prepare for debt recovery steps when necessary.
x. Regularly review aging reports.