What is Accounts Receivable and How Can it Help Your Business?

Introduction

Accounts receivable is an important element in the financial system of any business. It is a record of the money owed to the business and an integral part of a business’s financial management and tracking. With Accounts receivable, you are able to monitor any and all amounts that are due to you from customers, vendors, or other sources.

By utilizing Accounts Receivable, businesses can benefit in several ways. Below is an overview of the potential benefits of Accounts Receivable:

Definition of Accounts Receivable

Accounts receivable is a current asset account on a company’s balance sheet that tracks money that is owed by customers or clients in the normal course of business operations. It includes open invoices, bills, and other amounts due that have not yet been paid by customers. Accounts receivable is one part of the accounting cycle and tracks any amounts that are awaiting payment. As businesses pursue payment of these amounts, they are debited from Accounts receivable and credited to accounts payable or revenue.

Overview of Benefits

• Efficient management of customer payments
• Reduced overdue accounts
• Improved customer relationships
• Allows businesses to plan cash flow more accurately
• Provides access to cash flow decisions
• Allows businesses to identify high-risk accounts

What is Accounts Receivable?

Accounts receivable is a term used to describe money owed to a business. This money is received by a business as a result of selling a product or service on credit. When a customer purchases something on credit, they agree to pay the business back at a later date, usually within 30 days of the purchase. This payment is recorded as an account receivable.

A Process for Businesses with Credit Sales

For businesses who offer credit to customers, accounts receivable is more than just a transaction. It is a process that starts with the credit sale and continues through to receiving the payment from the customer. This process typically begins when a customer purchases something on credit and continues until the customer pays off the balance.

Recording Summary

Once a credit sale has been made, the business must record the transaction in their accounts receivable ledger. This ledger records the amount that the customer owes and keeps track of any payments made. It also records any interest or late fees that may be incurred if the payment is not made on time. This recording summary helps businesses keep track of their accounts receivable and allows them to properly manage their finances.

Earning Credit

Businesses that offer credit can often offer more competitive prices than those that do not. This is because they can spread their risks across multiple customers and have a larger pool of potential customers to draw from. Additionally, businesses can earn credit with suppliers, which can enable them to take advantage of discounts or special offers that are not available to other businesses.

What is the Benefit of Accounts Receivable?

As a business, there are many different benefits to taking advantage of Accounts Receivable. The main benefit comes from increased cash flow, along with more accurate records and reporting due to a streamlined tracking process for outstanding balances.

Increased Cash Flow

The most apparent benefit of using Accounts Receivable is that it provides businesses with an immediate influx of cash. By allowing customers to pay for goods or services in multiple payments, businesses are able to avoid large deductions from their cash reserves at any given time. This can help to give businesses an extra advantage in areas where cash flow is necessary and enable them to secure more funding or investments.

More Accurate Records and Reporting

With Accounts Receivable, businesses can also benefit from having access to more accurate records and reporting on their customers' payable balances. By tracking individual transactions in an automated system, businesses are able to quickly generate accurate reporting on their customers' payments and balances due. This can help to improve customer relationships and allow businesses to better manage their cash flow.

Streamlined Tracking of Outstanding Balances

Finally, Accounts Receivable can help businesses to streamline their accounting process, allowing them to quickly track outstanding balances at all times. With automated tracking, businesses are able to easily view the status of their customers' payments and how much of the balance is due at any given time. This can help to reduce the amount of time and effort needed to generate accurate accounting records and ensure that customers are held responsible for their outstanding balances.

Overall, Accounts Receivable is a valuable tool for any business looking to increase their cash flow and improve the accuracy of their accounting records. By taking advantage of Accounts Receivable, businesses can save time and ensure that they have control over their customer’s payment history and outstanding balance.

How Does Accounts Receivable Improve Cash Flow?

Accounts receivable, or AR, is an important part of any business. AR refers to the collection of money owed to the business by customers. This can happen when customers pay for goods or services on credit. Maintaining strong accounts receivable helps businesses cash flow, allowing them to pay vendors and other expenses promptly. Here’s how accounts receivable can improve cash flow:

Automatic Collection of Repayments

AR systems not only collect payments from customers but also provide periodic reminders. This means that businesses can be sure that payments have been made on time and also chase up overdue payments quickly. In addition, online payment tools and automated reminders save time and make it easy to keep track of payments.

Quick and Easy to Pay Debts

By keeping all accounts receivable in one place, businesses can quickly identify any debts that need to be repaid. This gives businesses the opportunity to prioritize spending and ensure that payments are made in a timely manner. Furthermore, automated reminders ensure that customers are more likely to pay on time.

Easier to Recognize Bad Debts

AR systems help businesses identify negative cash flow patterns. By keeping track of changes in turnover and customer activity, businesses can detect any customer or invoice discrepancies early on and reduce their risk of non-payment. Keeping track of bad debts also helps businesses adjust their cash flow strategy and manage customer accounts accordingly.

What is Involved in Accounts Receivable?

Accounts receivable involves tracking invoices, managing customer credit, and following up on payments. It helps businesses ensure that they are paid on time for the goods and services they provide. In this section, we'll discuss each of these components in more detail.

Invoices

Invoices are the primary document that is used in accounts receivable. It's a document that is sent to customers when goods and services are provided, and it usually includes the details of the transaction, as well as payment terms. Invoices also serve to remind customers of the debt they owe to the business.

Credit Management

One important part of accounts receivable is managing the customer's credit. This includes setting credit limits, monitoring customers' payment histories, collecting payments, and reporting any delinquencies. In addition, it also helps ensure that customers aren't over-extended, which helps maintain their trust in the business.

Payment Follow-Up

Following up on payments is another important part of accounts receivable. This includes sending reminders and other notifications, as well as tracking past due payments. This helps ensure that customers pay on time and helps businesses recover any outstanding payments.

By tracking invoices, managing customer credit, and following up on payments, accounts receivable helps businesses ensure that they are paid on time for their goods and services.

Accounts Receivable Tools

As businesses expand and become more complex, the need for reliable and easy to use accounts receivable tools have become essential to efficient and accurate finances. An accounts receivable tool leverages automation, cloud accessibility, payment tracking and financial data visibility to provide businesses with a better understanding of their customers’ payment habits, providing a better means of managing their receivables cycle.

Software

Software applications such as Prophix and Nexpart are designed to provide businesses with a secure and user-friendly experience when managing customer receivables. These applications facilitate a variety of features such as automation and customization to ensure that every aspect of the accounts receivable process is handled correctly and efficiently. These applications also have reporting capabilities that allow users to create accurate customer receivables reports in order to make better-informed decisions.

Payment Tracking

Tools such as NetSuite Cash will allow businesses to quickly and easily keep track of their customers’ payments. This feature tracks when payments are due, when payments are expected to be received, when payments are expected to be made and also tracks the outstanding balances of customers. By leveraging this feature, businesses can have a better understanding of their cash flow, thus reducing the risk of customer default.

Cloud Solutions

Cloud-based solutions are becoming increasingly popular in the accounts receivable world. These solutions provide businesses with a secure, cloud-based platform to track, record and manage all customer receivables. Leveraging the cloud ensures that data is available whenever and wherever it is needed and also allows businesses to access customer information quickly and easily. Furthermore, cloud solutions are scalable and provide businesses with the flexibility to manage their accounts receivables in a more efficient manner.

Conclusion

Accounts receivable (AR) is a type of asset that stores money a business is due from customers. It is important for managing cash flow and keeping track of payments of goods and services provided. AR also eliminates the need to issue paper invoices and makes it easier to keep track of collections.

Review of Benefits

In summary, AR helps businesses to streamline their collection process and easily follow-up on outstanding payments. It is also an effective way to track inventory levels, identify which accounts are past due, and improve credit and collections cycle.

Summarizing Advantages of Accounts Receivable

Using AR provides businesses with the following advantages:

• It increases the speed of invoice payments since it is easier to follow up on overdue invoices.
• It eliminates unnecessary paperwork and makes filing easier.
• It keeps better track of inventory levels and can reduce stockouts.
• It allows businesses to keep a better track of how much money they are due from customers.

Guidance of Implementation

If you are interested in implementing an accounts receivable process for your business, there are many solutions available to help you manage the process. It is advisable to research different options to find one that best suits your business needs. There are several online solutions that are available to provide you with an effective accounts receivable process.