Brief Introduction
You may be confused the first time you look at an aged creditors report, wondering what ‘ageing‘ means, how to manage your creditors, or which suppliers you should even prioritise paying first.
Don’t worry – in this guide, you’ll get a run down on what aged creditors means, the importance of the aged creditors report for your business, and some tips on managing suppliers and best practises for payment.
Table of Contents
- Understanding Your Aged Creditors
- Why is the Aged Creditors Report Important for my Business?
- How to Manually Conduct Creditors Analysis
- Best Practises for Paying Suppliers
Understanding Your Aged Creditors
What is a Creditor?
A creditor is an entity who your business owes money to. This can be a lender, supplier, or any other business. This is sometimes referred to as accounts payable.
What is an Aged Creditor?
Aged creditors are suppliers who you owe money to outside of your agreed payment terms. The ‘ageing’ refers to how old the credit is. This helps you identify which suppliers have the oldest debt and prioritise payment.
What are Payment Terms for Aged Creditors?
Payment terms are the agreed timelines each supplier gives you for paying back the total amount for an invoice.
What is the Aged Creditors Report?
The Aged creditors report contains purchase invoices with outstanding amounts. Like with aged debtors, these amounts are split into separate aged buckets, based on how long the transaction is outstanding.
This is displayed as the past 4 accounting periods – the past 30 days, 60 days, 90 days, and 90 days or more.
Aged Creditors Report Example
Let’s use the example below to explain the report. In this detailed report from Thrive Accounting Software, each creditor with an outstanding invoice is listed.
Take note of the aged bucket each invoice falls under. Older invoices, such as INV00034, are over 90 days old – this would be highest priority for your business to pay.
Leaving invoices such as this unpaid any longer could result in late payment fees, or legal action from creditors.
Why is the Aged Creditors Report Important for my Business?
No matter the size of your business, you know that paying suppliers on time is important. However, taking advantage of this report can elevate and help your business in the long run in 3 key areas:
Building Trust with Creditors
By identifying the age of invoices you can start to build a history of consistent payment, made on-time and within your supplier payment terms.
This will create trust between your business and suppliers – leading to possible discounts for early payments, improved credit ratings, and a healthy cashflow.
Avoiding Legal Action
Consistent payments means you begin to review the report on a regular basis, ensuring your outstanding credit does not age beyond 90 days.
Not reviewing the aged creditors report means relying on creditors to remind you of late payments.
Over time, late payments can build distrust and could push creditors to take legal action to collect debt. That means stricter payment terms and difficulty obtaining financing in the future.
Good Signs for Investors
These consistent payments also have another added benefit – your balance sheet look much stronger to investors when you eliminate outstanding credit.
When you start looking for investors, part of your reports will include how long the business takes paying creditors. Use the aged creditors report to stay on top of payments now, and you’ll make your business looking like a healthy investment opportunity for the future.
How to Manually Conduct Creditors Analysis
Nowadays, the aged creditors report is built into accounting software by default, like with Thrive Accounting Software. This makes it simple to get a grasp of your outstanding invoices instantly.
If you can’t access this report or want to do it by hand, here’s how to creditors analysis manually:
- Gather your list of purchase invoices that have an outstanding amount. You can do this by running a supplier enquiry report for outstanding purchases in your accounting system.
If that sounds like too much work, try Thrive Accounting Software’s Supplier Aged Analysis Report – you’ll see a summary of each supplier and their outstanding invoices automatically. - Save this report to Excel, and ensure you have the following information:
- Invoice number
- Supplier Account code
- Invoice Dates
- Payment terms
- Create 4 new rows in your report, and add the last 4 accounting periods to create aged buckets. Start reviewing each invoice by looking at the date of the invoice, and enter it into the correct period – this will be the ageing of the invoice.
As a reminder, Thrive Accounting Software displays the ageing for each invoice automatically, and groups invoices for the same supplier together. - Once you’ve aged each invoice, now analyse the oldest aged bucket, from 90 days or more – any suppliers with aged invoices here should be paid as soon as possible.
- Begin organising bank payments for the suppliers, followed by emailing them a copy of your bank payment if required in your payment terms.
Best Practises for Paying Suppliers
It may seem overwhelming trying to catchup on your late payments – but you can make the process more efficient by following these best practises:
Review supplier ageing weekly
Building a habit of consistent reviewing ageing for your creditors gives you a birds eye view of your overall liabilities. You can spot when an invoice begins slipping into older aged buckets, and avoid late payment penalties from suppliers.
Take advantage of Early Payment Opportunities
Invoices still within their credit terms are easy wins for your business. Paying early can build trust with your suppliers, opening the door to negotiate discounts and higher credit limits.
Pay transactions in Full and in Bulk
Payments in full eliminate the need to create multiple bank transactions and constantly be harassed by suppliers. Bulk payments allow you to make all payments for the month in a single run – so you can relax until the next accounting period.
You can streamline paying multiple suppliers even further with Thrive’s Bank Payment Runs – Simply choose a bank account and Thrive will add all suppliers with outstanding transactions. You simply pick and choose which transactions to pay. You can save your payment run as a draft & return at a later date, generate SEPA files, or post every transaction at once as one payment.
Download our “Managing Aged Creditors Cheat-Sheet”
Looking to start managing your creditors, or need a few tips for using the aged creditors report? Click the link below to download a free cheat sheet containing our top 10 tips for getting started.
Download our Free Guide:
Take Control of your Aged Creditors with Thrive
Manually doing creditors analysis is a great start, buy why spend all that time creating it each week? With Thrive’s purchases module, you can take control of managing your creditors and their ageing with ease.
Our Supplier Aged Analysis Report helps you stay on top of which suppliers you are falling behind on payments for.
The Summary report gives you a birds eye view of the amount owed to each supplier, split into aged buckets to easily identify the amounts due.
The detailed report gives you a comprehensive list of outstanding transactions for each supplier. You’ll be able to prioritise which invoices to pay instantly, like the invoices aged over 90 days below:
With our dedicated Purchases module, you can replicate your supplier payment terms in Thrive. Configure descriptive warning messages to appear when you’ve reached your credit limit, visible on any transactions for a given supplier – perfect if you need to tweak payment terms at a later date.
Thrive’s Transaction Conversions are another killer feature – you can streamline your purchasing process by converting multiple goods received notes at once. Simply select any active GRNs, and you can generate purchase invoices in two clicks.
Finally – Sending remittances to your suppliers is simple with Thrive’s Bank Payment Actions – select multiple bank payments, and you can choose to download or email a PDF containing your payments to every supplier with just a few clicks.
Request a demo today and see how Thrive accounting software can transform your purchase and credit management, streamline your operations, and boost your business’s efficiency. The Thrive team will be delighted to showcase all its features and benefits that make Thrive the ultimate solution for efficient creditors aged analysis.
