How to prepare an accounts payable aging report

What is an AP aging report?

An accounts payable aging report is a document that lists your company’s unpaid and past-due invoices. It totals the list of invoices you haven’t yet paid and organizes them first by vendor, then by days overdue.

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An AP aging report helps you understand, at a glance, how well you’ve been keeping up with vendor payments. Nearly all accounting systems or ERP software can generate an AP aging report. They’ll usually group your payables into 30-day increments:

• Current: Bills that are not yet due
• 1–30 days: Bills that are 1-30 days overdue
• 31–60 days: Bill that are 31-60 days overdue
• 61–90 days: Bills that are 61-90 days overdue
• 90+ days: Bills that are more than 90 days overdue

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AP aging reports can help you plan cash outlays more accurately and prioritize payments to specific vendors if you don’t have enough cash on hand to cover your full AP balance. For those reasons, it’s among the most useful accounts payable reports you can run.

Components of an AP aging report

As with most financial reports, your AP aging report can be laid out however you find most useful. Even still, most AP aging reports look something like this:

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The first column will list the names of any vendors or suppliers that have sent you a bill. For each vendor, outstanding invoices will be categorized by the number of days they’ve been outstanding, summed and entered in the columns to the right. This layout helps you:

1. See what you owe to specific vendors
2. Forecast your upcoming cash needs
3. Understand the makeup of your AP balance

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It’s important to note that an AP aging report doesn’t explicitly show your payment terms with each vendor. You can clearly see when bills are overdue but not when late payment fees or interest will be assessed.

How to read an AP aging report

When reading an AP aging report, first look at the total amounts in each column. What do you notice? If you have amounts in any other columns than “Current,” you have bills that are past due. What’s your plan for paying them? This can help with cash flow management.

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Next, look at each row to better understand how you manage payments to each vendor. You’ll see which vendors are paid on time and which have been less of a priority for you. Make changes accordingly.

How to prepare an AP aging report

Creating an AP aging report from scratch can be cumbersome and time-consuming compared to generating one in your ERP or AP automation software. Here are the steps:

1. Collect invoices: Collect all your invoices, bills, and credit memos from your vendors and suppliers. This ensures the data you’re using to build your report is complete. The report won't be accurate if you’re missing even one or two invoices.
2. Categorize by vendor: Once you have all your bills, organize them by vendor
3. Subcategorize by age: Organize your bills by due date within each vendor category
4. Place payables in buckets: Within each vendor category, place those bills in the aging buckets you’re using (e.g., 1–30 days, 31–60 days, etc.). Total the amount in each bucket. You can begin to organize this information in a table like we showed above.
5. Total each category and subcategory: Total each row (to show how much you owe to each vendor) and each column (to show how much you owe within each aging bucket), then get a combined total of outstanding invoices
6. Match to balance sheet: The total invoice amounts should match your accounts payable balance. If it’s not, dig into the details to find missing invoices or to fix errors

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If you had to do this manually each time you wanted to see your AP aging report, you’d wind up wasting a lot of time. Small, medium, and large businesses alike will want to rely on their financial software to generate an AP aging report instantly and without errors.

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The process of creating an AP aging report with the help of software is much simpler:

• You’ll first enter your invoices into the software. If you get paper invoices, you can type the information into the system manually, or you can use optical character recognition (OCR) technology to automate invoice capture
• Once invoices are entered into the system and linked to the correct vendor accounts, your software can generate an AP aging report for any date you choose

When and how to use AP aging reports

Once you generate your report, you need to know how to use it. But first things first: What’s your goal for the report? To reduce late payment fees? To improve vendor relationships? To know how much cash you’ll need to get current on your past-due vendor invoices? Know what you want before trying to interpret what you’re seeing.

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If your goal is to reduce late payment fees, for example, you’ll first need to know when late payment fees are assessed. But as noted above, the report only shows when payments are overdue—not when late fees are assessed. You might need to dig into your records to find those details and use them in tandem with your aging report.

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Another great way to use aging reports is to look at how your report trends over time. If you run the report once a month for an entire year, look at all 12 reports at once. How have your outstanding invoices changed? Did you begin paying your bills more timely as the year went on? If so, did you see a drop in late payment fees or an improvement in vendor relationships?

AP aging report vs. AR aging report

Your AP aging report and AR aging report are almost exact opposites: Your AP aging report categorizes bills you owe to vendors, and your AR aging report categorizes amounts you’re still owed from customers. Here’s an at-a-glance breakdown of the differences:

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Benefits of AP aging reports

AP aging reports can help you:

• Pay invoices on time
• Take advantage of early payment discounts
• Prioritize payments for certain invoices or vendors
• Triage payment of overdue bills when cash reserves are tight
• Better understand your cash flow needs
• Address cash flow problems
• Improve vendor relationships
• Reduce late payment fees and interest charges
• Reveal inefficient AP processes
• Make better strategic decisions
• Prevent supply chain disruptions due to unpaid invoices

Common challenges and best practices for AP aging reports

One common misconception is that the AP aging report is only helpful if you have past-due invoices. This isn’t true—it can also highlight how much you owe to certain vendors at any given time. This can be helpful if you need to make additional orders or want to change suppliers.

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To get the most out of your AP aging report, here are a few best practices:

• Input invoices immediately: This ensures you can run your AP aging report in real time and get an accurate picture of your outstanding balances
• Verify invoice date: The invoice date is crucial for your AP aging report. Make sure the invoice date reflects what’s on the invoice, not the date you received it or the date you made the entry
• Use technology: Use software with OCR technology to scan and read paper documents to improve accuracy and efficiency
• Automate your report: Automatically run your report every month, at minimum, then take time to review it
• Look at trends: Don’t just look at the current report; look at how your AP aging reports are trending over time
• Investigate: If something seems off, dig deeper to see what’s going on

Track AP aging and improve cash flow with Ramp

Reporting is an essential part of your AP process, helping you better understand your company’s financial health and cash position. Ramp’s modern accounts payable software lets you see all your most important AP metrics in a single dashboard—plus a whole lot more.

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Ramp uses machine learning to help you automate your entire accounts payable process, from invoice capture to approval, payment, and matching. With less manual work, you can spend more time on strategic planning: Integrate Ramp’s real-time data with your ERP solution to get a holistic view of your financial health and make better business decisions.

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Learn more about how Ramp’s AP automation software has teams doing a month’s worth of AP in minutes.