An account aging report is a tool that revenue generating startups can use to manage and track their accounts receivable. The report provides a detailed breakdown of the outstanding balances on a company’s accounts receivable, and shows how long each balance has been outstanding. This is a particularly useful tool for startups that have larger contracts, or have many modest sized contracts with a large number of customers, and can usually be prepared by a startup’s accounting team.
An account aging report can help a business in several ways. First, it can provide valuable insights into the company’s cash flow. By showing how long each outstanding balance has been outstanding, the report can help the company to identify any potential delays in payment and take action to collect the outstanding balances.
Second, an account aging report can also help a business to identify and manage potential risks. For example, the report can highlight any accounts that have been outstanding for an unusually long period of time, which may indicate a potential problem with the customer. This information can help the business to take steps to minimize the risk of non-payment and protect its cash flow.
Third, an account aging report can also help a business to improve its credit management processes. By regularly reviewing the report, the company can monitor its accounts receivable and take action to improve its collections and reduce outstanding balances.
Will VCs ask for an account aging report during diligence?
It is possible that venture capital firms may ask startups for an account aging report as part of the VC due diligence process. VC firms should (but don’t always!) conduct a review of a startup’s financial records before deciding to invest, and an account aging report can provide valuable information about the company’s relationships with customers.
How an aging report can highlight the company’s relationship with clients
VC firms may also use an account aging report to evaluate the quality of the company’s customer relationships. By reviewing the report, the VC firm can assess the company’s ability to maintain positive relationships with its customers and ensure that they are paying their bills on time.
Additionally this information can help VC firms to assess the company’s cash flow and evaluate the risk of non-payment. For example, if the report shows that a significant proportion of the company’s accounts receivable are overdue, this could indicate a potential problem with the company’s credit management processes. If a startup can’t collect from clients, then this would show a risk to the company’s financial projections and cash out date.
Overall, an account aging report can provide valuable insights into a business’s cash flow, help to identify and manage potential risks, and improve its credit management processes.