How To Calculate Days Outstanding for Overdue Invoices in Excel
Issuing invoices and chasing outstanding payments is one of those administrative tasks that no entrepreneur or business owner dreams of when starting a company. However, paid invoices are just as crucial to a company’s success as the very products or services it sells in the first place. Without invoices, a company has no chance of receiving payments and therefore it will make no profit at all.
In this article, we’ll dive more deeply into why invoices are so important to a business, and why chasing overdue invoices is crucial. We then outline how to calculate days outstanding for overdue invoices in Excel so that the administrative burden of identifying what invoices are overdue and by how much is reduced — which will free up your time to invest efforts into other parts of the business you need.
How to calculate days outstanding on Excel
The Today function can be used to help you calculate what invoices are outstanding on your record sheet. To do so, when generating invoices, you need to record when an invoice was issued and the due date in separate columns. For the purposes of explanation, let’s say you put the due date in column E with the first calculation for outstanding days in row 2. Then to calculate the days outstanding, in a separate column again, type in the formula: = IF(TODAY()>E2,TODAY()-E2,0). From there, it should calculate the amount of days outstanding for overdue invoices. For invoices not due, it will return 0.
Why invoices are important
Invoices are important to a company for a couple of reasons. Firstly, without issuing invoices, a company stands no chance of getting paid. Without providing a customer with the payment details they require to pay off their bill, they cannot settle up with you. And getting paid is obviously so essential for a company’s success. Without payments, it will make no money.
However, it’s more than just having the biggest bank balance possible. Companies need to have a healthy cash flow so that it can conduct business as effectively as possible too. Having a healthy cash flow means that a company can:
- pay its own expenses on time
- access the best terms on outside funding
- take advantage of any business opportunities that come its way
Secondly, invoices act as an important financial document and record of services or products provided. They can help both you and your customer in the future in the case of a dispute. They therefore act as a way to improve relations between you by keeping things above board and not subject to fraud.
Why chasing overdue invoices is crucial
Chasing overdue invoices is crucial as it will improve your company’s cash flow. As stated above, having a healthy cash flow is fundamental to the smooth running of a company and its overall success. Cash has often been spouted as king when operating a business, and outstanding invoices are a way that your cash flow is immediately affected for the worse.
Additionally, chasing overdue invoices is a critical step in not only getting paid but also critical should you wish to take legal action against late payment. Recording your chasing of an invoice is therefore vital and should be documented to help improve your chances of seeing a positive result from any disputes that may arise.
Overdue invoices are the bane of a company’s administrative or financial department. They not only mean that cash on the account is affected negatively, but they also soak up the time and energy of personnel who need to chase payment. That is time and energy that could be spent elsewhere improving a company and helping it grow in other ways.
Having procedures in place that make chasing late payments as quick and painless as possible is key. That’s why using Excel to help calculate what invoices are overdue, and by how much, is one of those ways you can help your company improve efficiencies. Employing the above steps should therefore result in not only payment of late invoices but also better profits from employees being more effective and productive overall.