Definition: The Aging Schedule is a tabular representation of all the bills and invoices along with their respective ages, i.e. the date on which these become due. Simply, all the bills receivables and bills payable are classified along with their date of maturity, to keep a check on which payment or receivable is behind its due date and by how many days.
The ranks are assigned to each bill receivable/payable according to their ages. The aging schedule categorizes the accounts as Current account – under 30 days, and Past dues account – 1-30 days, 31-60 days, 61-90 days and so on. It is ideal to have more current accounts than the past due accounts because the risk of bad debt is higher in the case of the latter.
Through aging schedule, a company can identify the bills that are overdue on its part and to which customer the payment reminder is to be sent if he is way behind the due date. Also, a firm can project its cash flows by evaluating the liabilities that need to be paid at the earliest and can anticipate the income on the basis of the invoices sent to the customers days back.
Thus, aging schedule is an important working capital management tool that helps in projecting the cash flow pattern, both inflows, and outflows, and helps in estimating the doubtful debts.