Suppose, you are running a business and your clients have taken goods or availed services from you but they didn’t pay money for the same. Or as a business you let buyers purchase goods or services on credit. But how would you know who you need to receive money from? Where would you record? Understanding ‘accounts receivables’ is crucial here. So here I am. In this guide, we’ll go through:
- – The concept of accounts receivables
- – Accounts receivable process
- – Importance of AR
Let’s deep dive in below.
What do you mean by accounts receivables?
In simple words, accounts receivable is the money that a company is entitled to receive from its customers for buying goods and services on credit. The business basically understands that the payment will come at a later date. Now that you have pending payments to receive, where will you keep a record of it? Let me tell you that accounts receivables are listed on the balance sheet as a current asset.
Who all come in the list of account receivables? The account receivables include debtors, trade debtors, trade receivables, and bills receivables.
As a company, you keep account receivables as assets on their balance sheet. Moreover, accounts receivables are your current assets. That means your balance is due from debtors. To get most out of AR, make sure to avail accounting services in Dallas at most reasonable prices.
Let’s now understand the process of accounts receivables.
The complete process of accounts receivables
Let me first tell you that the process of accounts receivables vary from business to business depending upon the number of receivables they need. Below I’m going to list the accounts receivable process which most of the business follow. So keep your eyeballs here only.
- – The first step involves with invoicing the customers on credit based on the credit policy
- – Now capture or record the credit days or due date
- – Write, follow-up and garner schedule
- – Build overdue bills and the ones that are pending from the longer time
- – Make sure to send remainder letter containing the details of bills that are pending
- – Once you receive the payments, just try to adjust the receivables accordingly.
- – Even if you get early payment, you my like to give discounts. All you need to do is make adjustments to the receivables.
This is the complete process you must follow to record accounts receivables.
Let’s dig deeper and talk more about it. Our next section will talk about the…
Major importance of accounts receivables
If you’re still reading this article, just continue reading as you’re going to read about the importance of accounts receivables of your business. Read on to know…
#Helps in generating cash inflow of the business
The very first importance of accounts receivables is that it helps businesses generate cash inflow of your business. It is vital because your company’s future cash flow is rightly affected by it. Moreover, your get better deal for your company. Accounts receivables attract investors as they check your company’s collection efficiency and then show interest in investing within your company.
#Accounts receivables make or break business
No doubt, if your payment gets delayed, you’ll be running out of money and that arises the problem of cash flow shortage. And then you unable to pay bills on time and vice versa. As per experts, 90% of businesses wind up instantly due to fault in their cash flow system.
#Build strong rapport with clients
Another important aspect of accounts receivable is that it helps businesses build strong relationship with their clients, and you’re one of them. Moreover, you mitigate the risk of bad debts. To manage accounts receivables, you can use advanced accounting software.
Final wordings
Account receivables are important aspect for any accounting firm like Kayabooks. The frequent rise in accounts receivables proliferate the chance of short term capital requirements investment. This also increases the short term borrowing leading to high interest burden and low profitability. It helps the company in increase its liquidity, efficiency, and cash flow. Moreover, it forms a major part of your company’s asset and shows in the balance sheet as current assets.
For further query and question to ask, kayabooks is her. Just get in touch with us.