What role does an aging schedule play in accounts receivable?

An aging schedule plays a critical role in accounts receivable management by tracking and categorizing overdue invoices based on how long they have been outstanding. This tool enables businesses to assess the collectability of their receivables, prioritize follow-up efforts, and identify problematic accounts that may require more immediate attention. The aging schedule typically breaks down receivables into categories, such as current, 30 days overdue, 60 days overdue, and so on, providing a clear overview of the status of outstanding invoices. This structured approach helps businesses manage cash flow better, reduce the risk of bad debts, and make informed decisions about credit policies and collection strategies.