What are Accounts Receivables?
Accounts receivables are when some company sells the products and payment which they receive from its customer on credit. Accounts receivables amount is still with the customer because the purchase is made on credit. There is no credit period limit. It depends on the company how much credit period limit they are giving to customers. It can be long term and short term. It depends on company policies. We write current asset in the balance sheet as account receivables.
Points to remember
- Asset account represents the accounts receivables in the balance sheet
- AR is created when the buyers buy things from the company on credit.
- Accounts payable and accounts receivables both are similar
- Account receivable helps in showing company growth by analyzing the accounts
- When accounts receivable are to be received that will be good for the company. Then the analysis will be completed.
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How to Recording Account Receivables
AR is recorded in such a manner that by viewing we will get a clear picture of the amount.
- When the amount of AR is increased that will be written on is the debit side and when the amount of AR gets decreased that will be written on the credit side.
- When start receiving cash payment of AR. when there is an increase in cash then cash payment is recorded on the debit side and the account receivable on the credit side.
- Account payable records are recorded in the same manner when your company purchase s goods or services on credit and there will increase in the accounts payable. It will work reverse of AR.
Steps involved in Recording Accounts Receivables
Whenever a company sells any goods they usually expect when they will going to receive money. It is very important to record each and every aspect int the books. So that we are aware of how much amount is still left.
- The practice of Credit facility
The company has to specify all its terms and condition to its customer on the credit limit. The credit limit can be extended for a specific time and it depends on the company. The company will be allowed to charge a fine for customers if there is any problem with payment. The company has to sign an agreement with the customer side for giving credit facility and the company has to verify is that the customer side is capable to pay the payment.
- Generate invoice
The company has to generate invoices for the sold goods. So that they are having a proper record of the things goods what they have sold and to whom they have sold. Invoices must be having the date of sold goods, the name of the customer, and its contact details and goods details also. At last, the company has to give one to the customer and another for their record.
- Record payment received and payment due
The company has to hire an accountant for tracking the received payment and the due payment. The accountant will help in maintaining the received payment account and due payment account. Now everything will be recorded in the journal books of the company. With help of an accountant, you will be satisfied with the books and you will get reminders from the accountant whose payment is left.
- Accounting for the Accounts Receivables
The accountant helps in managing the accounts. They also help in settling the other party account by recording the dates of the payment and it tells the company and customer its time to pay the dues and time to receive payment. Once the payment is received and it’s recorded in the books, now the account is settled.
Benefits of Accounts Receivables
Accounts receivables are an important part of the company for analyzing the growth because AR is the current asset of the company and it specifies how much cash will come in the future. It helps in finding the turnover ratio of the company.
Account Receivable Turnover Ration helps in measuring how many numbers of times the company collected the amount of the receivable and how much balance is left or how much needs to collect and how timely the accounts receivable amount is collected.
How to improve Account Receivables
If you are having a problem in receiving accounts receivable amount and you need cash for the company then you need to improve your account receivable.
- Give offer or discount
The company has to give some offers and discounts to those customers who are giving payments on time. The company has to inspire them to pay faster payment or pay the payment on time by rewarding them.
- Charge fine for delay
The company has to charge a fine to that customer who doesn’t pay the payment on time. This extra charge will help you in receiving payment on time.
- Accounts receivable financing
With help of accounts receivable financing, you are able to improve your cash flow. When you issue an invoice you need to transfer that invoice to the factoring company. They have to pay 90 percent of the invoice.
- Borrow loan
You can take a loan from a bank. this will also help you in improving the account receivables. If this you draw a credit line. You don’t have to wait for the customer to pay the amount. Now your bank will pay. You just need to pay interest for the loan that you have borrowed from the bank.
- Use collection services
The company has to find some services will helps you in collecting accounts receivables amount. These services will charge for their services. They will go to the customer for collection and they will remind the customers about they have to pay the payment. These services are required only for those customers who are creating problems while payment.