We discussed the business triggering the collections process.

http://faoblog.com/processes-ar-collections-2/

Today we will take you through the Ageing Analysis.

We got a nice tip from Darrelle Hooks through Accounts Payable Automation Solutions group of Linkedin. He says “Ageing Analysis for Account Receivables and Account Payables can be easily be organized and prepared with Microsoft Excel spreadsheets. The ageing of the account as 30,60, and 90 respectively from a perspective shows which account are current and those that are delinquent.

One small note from me – Excel is very powerful for a lot of things, if used well, especially if you have two dimensional data. Once you start to work in more than two parameters, it does tend to get a little cumbersome. An example, if you have your client, multiple processes under this and then you are expected to record and analyze data from the transactional level, there will be a lot of repetition, which is where databases come in very handy. You could use MS Access or MySAP.

Coming back to the Ageing analysis.

Very simply, an Ageing analysis is determination of the period elapsed since a payment fell due and bucketizing it so that the client’s management team could determine where they need to focus first to ensure collection of funds which are delinquent. These buckets could be based on the nature of the business.

Ideally, most businesses are fine with 30,60,90,180, 180+ buckets. 30 would mean that the amount is due for less than 30 day, i.e. 0-30, 60 would mean that the number of delinquent days falls between 31 and 60, and so on….

For a client who was a stock broker, maintained a different scale. His scale was 2 days, 3-7 days, 8-15 days, 15-30 and 30+ days. When we analyzed, we actually got him to increase the scale to 60, 90 and 180 days as well, and this helped him recover some very old outstanding amounts from his customers.

There is no standard thumb rule for the periodicity, however, in most cases 30,60,90,180, 180+  works well.

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