Generally, a higher amount of sales leads to higher accounts receivable and thus increases our assets. But good sales amount with no timely collection leads to bad debts. Thus, it is necessary for a business to collect payments timely and reduce bad debts. Making Aging reports helps us to monitor long outstanding invoices which ensures timely follow-ups for collection with clients. Moreover, it helps us the business to design their credit policies.
Accounts Receivable is the cash flow for any business. Irregularities in collection lead to lower cash flows. To ensure the smooth running of the business aging report helps the business to ensure proper cash flows. In addition to the above, businesses use accounts receivable as collateral for loans from financial institutions.