What is an accounts payable aging report, how do I read it, and how do I use it to decide which bills to pay and when?

What is the report, and what feeds it?

AccountingTools' definition of the accounts payable aging report says it sorts payables to suppliers into time buckets so you can see which invoices are overdue. AccountingTools' list of liability types defines accounts payable as invoiced liabilities payable to suppliers, so the report is built only from entries in your payables ledger: bills, and the supplier credits and payments recorded against them. Microsoft's documentation for the Business Central Aged Accounts Payable report, as one example, says it shows the amounts on outstanding invoices, credit memos and payments for vendors.

If you record a cost only when money leaves the bank, the report has nothing to age. AccountingTools' definition of cash accounting says expenses are recognized when cash is paid, so under that practice no bill is carried as owed, and an empty aging means your books do not run bills, not that your software is broken. Whether to start entering bills, and how the bill-then-payment cycle posts, is a separate decision.

What do the columns measure, and from which date?

Each column holds the bills in one age band at the report date, and AccountingTools' definition says the report is typically set up with 30-day buckets. What a column means depends on the date the report counts from, and a report can count from one of three dates:

• Due date. Intuit's QuickBooks Online article on why aging reports have both Current and 1-30 columns says its aging is based on the due date: Current holds anything not yet due, 1-30 holds bills past due by the days since the due date, and a transaction with no due date is treated as due on receipt and aged from its own date. These columns answer "how late is it?"
• Bill date. Intuit's QuickBooks Desktop article on paid bills that still show as open describes a preference that either keeps a bill current until its due date or starts aging immediately on the transaction date. AccountingTools' definition describes columns of invoices 0 to 30, 31 to 60 and 61 to 90 days old, and warns that this assumes every invoice is due in 30 days, so a bill shown as current may be overdue and one in the 31 to 60 column may not yet be payable.
• Date posted to the books. Sage Intacct's help for its Vendor Aging report lets you choose the date the report is based on, and GL posting date is one choice.

Take one bill dated April 15 on 30-day terms, so due May 15, and posted on June 5. On a report at June 30 it is 46 days past due by due date (the 31-60 column), 76 days old by bill date (61-90) and 25 days old by posting date (the first column). Find which date your own report uses before concluding that anything is late.

What does the total tell you?

The total is every open bill at the report date, less credits and payments not yet matched to a bill. Because the Current column holds bills not yet due, the total mixes next month's bills with ones already months late. What is due now is the past-due columns of a due-date report, and only once their lines are confirmed as real.

How do you read it by vendor and by column?

Read down a column to see how much is late and by how long: that view answers "how much of what we owe is overdue, and how badly?" Read across a vendor's row to see what one supplier is owed, split between not yet due and overdue: that view answers "what do we owe this supplier, and is any of it late?" Payment is decided supplier by supplier, because terms, credits and the relationship belong to each supplier. When a summary line is not enough, use the detailed version; Microsoft's documentation for Business Central, for example, says its report can show either a summed balance for each vendor or a detailed breakdown of each outstanding document.

How do you agree the total to the balance sheet?

AccountingTools' article on control accounts says the ending balance in a control account should match the ending total for the related subsidiary ledger. Here the control account is accounts payable on the balance sheet, and the aging total is the ledger's total. Draw both at the same date and run the balance sheet on the accrual basis. A cash-basis balance sheet recognizes expenses when paid rather than holding unpaid bills, so comparing it with the aging, or comparing reports drawn at different dates, produces a false alarm rather than a finding.

Before comparing, finish posting, then run both reports. AccountingTools' guide to reconciling accounts payable has you verify that the payables journal was posted to the general ledger, that the aging was run after all posting was completed and that the general ledger is set to the correct reporting period. A difference from unfinished posting is not one to carry.

These differences can legitimately remain:

• Entries posted straight to accounts payable. AccountingTools' article on control accounts names a journal entry made to the control account but not to the subsidiary ledger as a possible cause of a mismatch. Each should be an entry you can name and explain.
• Supplier debit balances moved out of payables. AccountingTools' article on negative liabilities says a negative liability is technically an asset to be classified as a prepaid expense. If your accountant has moved such balances, the payables line exceeds the aging's net total by those amounts.

A difference you cannot trace to one of these means the ledger itself needs repair.

What does reading one report end to end look like?

This invented aging is run at June 30 on the accrual basis and aged by due date:

It can be read three ways:

• One column. The 1-30 column, 1,950.00, is what was 1 to 30 days past due at June 30: 1,100.00 owed to Ridge Packaging and 850.00 to Lakeside Freight.
• One vendor line. Ridge Packaging's 3,500.00 is 2,400.00 not yet due and 1,100.00 up to 30 days late.
• The total. The 5,450.00 is 5,850.00 of open bills less Crestline Printing's 400.00 credit. Only 3,150.00 (1,950.00 plus 1,200.00) was past due, and Northside's 1,200.00 in the oldest column needs checking before it counts.

Confirm whether Crestline's negative vendor balance is a supplier credit or an overpayment before relying on it. It offsets only Crestline's future bills, so paying every other open bill still takes 5,850.00.

The balance sheet at June 30, on the accrual basis, shows accounts payable of 5,850.00. The tie-out runs as follows:

A June repair of 800.00, owed but not yet billed, sits in accrued liabilities, not accounts payable, so it is on neither the aging nor the payables line and must still be planned for.

How do credits, unapplied payments and negative balances show up?

They reduce the supplier's line; how they appear depends on the system. AccountingTools' definition of the aging report calls it a good place to look for stray supplier credits not yet applied to open invoices. Intuit's QuickBooks Desktop article on paid bills that still show as open says a paid bill stays open when a bill credit or bill payment is entered but not applied to a bill, and tells you to look on the Unpaid Bills report for negative amounts that indicate unlinked bill credits or bill payments. Read them this way:

• A supplier credit not yet applied. It lowers that supplier's line and the report total, but it offsets only that supplier's bills. AccountingTools' article on negative liabilities says such credits can be used to offset future payments to suppliers.
• A payment not applied to its bill. The bill it paid still shows as open, with a credit or unapplied-payment line beside it for the same supplier, so a paid bill looks unpaid.
• A negative vendor balance. You have paid or been credited more than you owe that supplier. The same AccountingTools article gives paying an invoice twice as its example and says most negative liabilities are created in error.

Which lines mean the ledger is wrong rather than a bill being late?

An unapplied payment leaves its bill open and aging, so errors drift into the oldest columns. Check each line there before it enters any payment plan, against the original bill, your own bank and card statements (was it already paid?) and your own order and delivery records (was it owed?). A supplier's reminder is not a substitute for that check. Each oldest-column line turns out to be one of three things:

These other lines also point to a misstated ledger rather than a late payment:

• The same invoice entered twice. AccountingTools' definition of the aging report says reviewing it can reveal duplicate invoices.
• Bills overdue a day after their own date. Under the QuickBooks Online rule above, a bill without a due date is due on receipt, so check the terms entered before treating it as late.
• A total that will not agree with the balance sheet. It still differs after the named differences are out.

Finding what went wrong and fixing it without double-counting the expense is a separate job; until a line is confirmed, keep it out of the payment plan.

What does the report never show?

It shows nothing that was not entered in the payables ledger. These are missing from it:

• Bills received but not yet entered. They are owed but invisible to the report until entered.
• Amounts owed but not yet billed. AccountingTools' list of liability types defines accrued liabilities as liabilities not yet invoiced by a supplier but owed as of the balance sheet date.
• Obligations kept in other accounts. The same list includes compensation earned but not yet paid to employees, taxes from a recent payroll, and sales taxes charged to customers that must be remitted to the taxing authority. Anything else your books record outside accounts payable, such as a loan or card account, is missing too.

Look for them in the other liability accounts on your balance sheet, in payroll and tax records, and, for goods or services received but not billed, in your own orders, delivery records and supplier statements. Plan cash against the aging plus these, never the aging alone.

What should decide which bills are paid first?

Age alone does not settle the order; these factors do:

• Validity. Only lines confirmed as owed enter the order.
• Due date. Each supplier's terms set it, and AccountingTools' definition of the aging report says prioritizing payments by due date lets a business avoid late fees.
• Discount deadlines. Where a supplier's terms offer an early-payment discount, the discount has its own earlier deadline. AccountingTools' article on short-term sources of funds lists lost early-payment discounts among the costs of paying suppliers late.
• Late-payment consequences. Late charges, interest or a hold on your account come from your own agreement with each supplier, so read it. The same article warns that late payment may strain supplier relationships, and that overuse can damage credit terms and disrupt supply continuity.
• Continuity of supply. A supplier whose goods or services you cannot operate without weighs more than one you could replace or do without for a while.
• Credits on the account. A confirmed unapplied credit reduces what that supplier is owed before anything is sent.

What about suppliers you pay from a monthly statement?

The aging is built bill by bill, while a supplier paid from a statement or on account keeps a running account and may apply your payments its own way, so the two rarely match line for line. Before the aging drives that supplier's payment, reconcile its lines to the supplier's statement at the same date. AccountingTools' guide to reconciling accounts payable says vendor statement reconciliation compares your records with suppliers' statements to identify unrecorded invoices, unapplied credits or timing differences. An invoice on the statement but not in your books is checked against your own orders and delivery records before it is entered; a payment you recorded on account without applying it shows in your aging as a credit or unapplied-payment line; a payment in transit is timing. Decide that supplier's payment from the reconciled balance.

How do you use the aging when cash will not cover everything due?

AccountingTools' definition of the aging report calls it especially useful when a business is short on cash. It tells you, supplier by supplier, what is already past due, by how much, and what falls due next. It cannot tell you what cash will come in, which is a cash-forecasting job, what a supplier will actually do if paid late, which lines are real until you check them, or what else must come out of the same cash. Work through it in this order:

1. Run the aging at today's date, aged by due date if your report allows it, in the detailed version so each bill shows its due date.
2. Agree the aging total to accounts payable on an accrual-basis balance sheet at the same date, as above. Until any difference outside the named ones is traced, pay only lines you have confirmed individually.
3. Check every line in the oldest columns, and every credit or unapplied-payment line, against the original bill, your own bank and card statements and your own order and delivery records, and move ledger errors to a repair list. Then scan every column for the same supplier invoice number, or the same supplier and amount, entered more than once, and move any duplicate to that list; pay only lines that match an original bill.
4. Reconcile each supplier you pay from a statement to that statement.
5. List what falls due over the same weeks but is not on the aging: wages, payroll taxes and sales tax collected. Their amounts and deadlines come from outside the aging; set them aside first, so the cash available for suppliers is what remains. Check each bill not yet entered against your own orders and delivery records, enter it and rank it in step 7. Note amounts owed but not yet billed, and rank each once billed.
6. For each supplier, note the due dates, any discount deadline, the late-payment consequence in your agreement and whether you depend on its supply.
7. Rank the bills: first those whose late payment would stop supply you depend on or trigger a charge under your agreement, most overdue first; then any discount still open, from cash left after those; then every other past-due bill, most overdue first; then bills not yet due, by due date.
8. Work down the ranking with the cash available for suppliers, recording each payment against the bill it pays, then re-run the aging to confirm those bills closed and no new credit or unapplied-payment line appeared.