Factoring Blog

Accounts Receivable Aging Report – Why Do Factoring Companies Ask for It?

As part of their application process, most factoring companies will usually request an accounts receivable aging report. This is the most important piece of information that factoring companies will ask you for. They use this report, along with other information,  to create their proposals. And for the most part – your rate, your advance and other terms will be determined by what the factoring company finds.

The Receivables Aging Report

Although there are many versions of this report, the accounts receivable aging report basically shows a list of your customers, the amount they owe, and for how long the amount has been outstanding. The report usually breaks the amounts in 30 day intervals. So the first column may show amounts that are current. The second column shows invoices that are past current by 1 – 30 days. The second column will show amounts that past current by 31 – 60 days. And so on. It’s not unusual for customers to have entries in multiple columns. Here is a simplified example:

 

Customer Current 1 – 30 31 – 60 61 – 90 >90 Total
Cust1 $100 $50 $10 $0 $0 $160
Cust2 $200 $0 $30 $0 $0 $230
Total $300 $50 $40 $0 $0 $390

Since factoring is basically an advance on your open invoices, this report allows the finance company to determine the number of customers that you have and how much is owed to you. It will also give the factoring company a brief glimpse of the credit quality of your invoice portfolio. For example, if they see that certain customers have amounts outstanding in all columns all the way up to >90, they may determine that this customer is a slow paying customer. Alternatively, they may determine that there is a dispute and that the customer has been withholding payment until it’s resolved. As you can see, while useful, the accounts receivable aging report does not paint the full picture. Factoring companies will usually run commercial credit reports on your corporate customers and use that information – in conjunction with this report – to determine the credit quality of your portfolio.

Keep your accounting up to date

This is why keeping up to date accounting books is critical. Most accounting programs generate this report automatically using the information that is in the system. For example, if you do not update paid invoices in your accounting system, this report will show them as being unpaid. Some of these, may even appear as past due. A factoring company that is relying on an out of date or poorly maintained accounts receivable aging report will not be able to give you the best possible terms. If you’re looking for accounts receivable factoring (or any type of financing for that matter) you should make sure that the information in your accounting system is both accurate and up-to-date.

Disclaimer: This article is provided for informational purposes only and should not be considered as financial/legal advice. Please get professional advise if you require it.

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