What Is an AP Aging Report? How to Prepare One?

In simple terms, an accounts payable (AP) aging report is a record of the outstanding invoices your business owes its suppliers or vendors for a specific accounting period. An AP aging report will list outstanding payables by due date, with overdue payables listed first. Its purpose is to help AP teams effectively manage their financial obligations.

An AP aging report generally includes:

Vendor information: Including the supplier or vendor name, account number, and contact information.
Invoice details: An AP aging report lists all outstanding invoices for each individual vendor ― including invoice data such as the invoice number, issue date, due date, and amount owed.
Aging categories: Outstanding invoices are organized into different aging periods ― usually 30-day increments. Categories range from current invoices ― those that aren't yet overdue ― all the way up to invoices that are 90 or even 120+ days past their due date.
Total amounts owed: An AP aging report concludes with the total amount owed to each vendor, plus a grand total of your combined liabilities.

How to prepare your AP aging report

Preparing your AP aging report is an exercise in organization. The process involves organizing your outstanding invoices by due date and vendor, and categorizing them into different aging periods. Preparing an effective AP aging report requires full visibility into your AP data.

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Here's a step-by-step guide to preparing your AP aging report:

Step 1: Compile invoice information

Gather information on all your outstanding invoices, including the vendors each invoice belongs to, the invoice numbers, issue dates, due dates, and amounts owed.

Step 2: Determine your aging periods

You can choose whether to set your aging periods by days or calendar months. These intervals will depend on factors including your business needs, the accounting periods you use, and your industry best practices. If you're using days, standard aging periods generally follow 30-day increments to match common vendor payment terms.

Step 3: Organize invoices by due date

Organize your outstanding invoices chronologically by due date. This can be a time-consuming manual process, depending on how your vendors and suppliers display their payment terms, and whether you store your invoices digitally ― but it's important to help you arrange each invoice into the appropriate aging period.

Step 4: Organize invoices into aging periods

Next, you need to work out how many days each invoice is overdue, by comparing the due date with the current date. Then, you can organize each invoice into the corresponding aging period.

Step 5: Calculate totals

Work out how much you owe each vendor for each aging period by adding together the amount owed in the corresponding invoices. Then, you can calculate your grand total by combining the totals from each aging period.

Why are AP aging reports important?

Accounts payable aging reports are crucial in helping AP teams understand their outstanding liabilities and manage their cash flow effectively. Plus, by identifying and addressing overdue invoices, they can help teams improve their vendor relationships and avoid potential late payment fees. Additionally, they provide insights into the performance of the AP function, and any areas that might be improved.

How do I improve my AP aging report?

A 'good' AP aging report reflects a business with control over its accounts payable workflows. The best way to improve your AP aging report is to eliminate late payment, although there are steps you can take to enhance the accuracy, reliability, and utility of your reporting:

Report regularly: Regularly updating your AP aging reports ensures you're working from the current, reliable information.
Maintain data accuracy: Ensure invoice data is entered accurately by double-checking your entries. Inaccurate or unreliable data can lead to discrepancies in the AP aging report, affecting its usefulness.
Provide detailed vendor information: AP aging reports are useful in revealing which vendors are owed payment. By including detailed vendor information in your aging reports — such as contact information and payment terms — you can quickly and effectively communicate with each vendor, helping maintain strong vendor relationships.
Communicate with vendors: Late payment can be a two-way street. Regularly communicating with vendors can not only ensure positive relationships in the event of late payment, but also address any issues that may be delaying payment from the vendor's side.
Perform regular reconciliation: Regularly reconcile your AP aging report with general ledger data to identify and address any discrepancies.
Track performance: Key performance indicators (KPIs) — such as the average time to pay an invoice or the percentage of invoices paid on time — can be used to measure the team's performance and set achievable goals to improve your AP aging reports.
Use technology: Software solutions such as accounts payable automation can automate essential AP processes to reduce manual errors, improve data accuracy, and provide consistent tracking of all payables.

The role of automation

AP automation can help to improve your AP aging reports by addressing the processes that impact it:

Invoice automation: Quadient AP by Beanworks automates invoice header data entry with 99% accuracy — ensuring your financial information is reliable. Digital invoice storage means you can instantly locate any invoice, effectively minimizing late payment.

Customized approval workflows: Establish custom approval workflows for a reliable, transparent approval process. Easily look up the status of any payment at any time, and verify which invoices have been paid to eliminate bottlenecks.

PO automation: Gain unparalleled control and visibility into your planned spend with purchase order automation. Track your committed spend and establish spending limits for tighter control over your cash flow.

Automated payments: Fully automate the payments process with automated 3-way matching and reconciliation — with payments made directly from your bank account to your vendor.

By adopting AP automation, teams can ensure payments are delivered on time, according to their business' terms. This helps to maintain strong vendor relationships, improve cash flow, and enhance your AP aging reports.

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