Ageing is a tool used to assess the quality of accounts receivable. Through the aging analysis method, enterprises can classify accounts receivable of different ages and formulate corresponding strategies. The following describes how the aging method is calculated.
1. The calculation steps of the aging analysis method.
1.Determine the aging classification criteria.
First, companies need to determine the aging classification criteria for accounts receivable. Generally, according to the overdue time of accounts receivable, the aging can be divided into several intervals, such as 0-30 days, 30-60 days, 60-90 days, 90-180 days, more than 180 days, etc.
2.Count the amount of accounts receivable in each interval.
Next, the company needs to count the amount of accounts receivable in each interval. This can be done by preparing an aging table** that includes information such as customer name, accounts receivable amount, aging period, etc.
3.Calculate the proportion of accounts receivable in each interval.
On the basis of the amount of accounts receivable in each interval, enterprises need to calculate the proportion of accounts receivable in each interval. This step can be done by calculating the formula "Accounts Receivable Amount by Interval Total Accounts Receivable Amount".
4.Analyze the trend of aging percentage.
Through the analysis of the trend of the aging proportion in different time periods, enterprises can understand the changes in the quality of accounts receivable. If the proportion of aging accounts gradually increases, it means that the quality of accounts receivable of enterprises is declining, and collection measures need to be strengthened.
5.Develop a strategy.
According to the results of the aging analysis, enterprises can formulate corresponding strategies. For accounts receivable with a short age, enterprises can adopt a more gentle collection method; For accounts receivable with a long age, enterprises need to take more active collection measures, such as sending reminder letters and entrusting a third party to collect them.
2. Advantages and disadvantages of the aging analysis method.
1.Merit.
1) Ability to comprehensively assess the quality of accounts receivable;
2) Be able to find the problem of long-term uncollected accounts receivable;
3) It can provide a basis for formulating collection strategies.
2.Shortcoming.
1) The calculation workload is large;
2) the classification criteria may not be precise enough;
3) Susceptible to customer credit risk.
3. How to improve the accuracy of aging analysis.
1.Aging data is updated on a regular basis.
To ensure the accuracy of aging data, businesses need to update aging data regularly. The specific update frequency can be determined according to the actual situation of the enterprise, and it is generally recommended to update it at least once a quarter.
2.Adopt automated tools.
In order to improve the efficiency and accuracy of calculations, enterprises can adopt some automation tools, such as aging analysis software. These tools can help businesses process large amounts of data quickly and reduce human error.
3.Establish a sound customer credit management system.
By establishing a sound customer credit management system, enterprises can more accurately assess the credit risk of customers, so as to more accurately calculate the results of aging analysis. At the same time, the system can also help enterprises to identify the potential risks of customers in advance and avoid the occurrence of bad debt losses.