What Is Accounts Receivable And How To Manage It?

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Are you the owner of an emerging business? Or are you someone who heads the financial decisions of a company? Then, the decisions you take can make or break your establishment. In today’s competitive world, running a business successfully is no easy feat. One needs to monitor and meticulously plan all the important financial decisions constantly. Even minor miscalculations can start the dominos effect and lead to huge losses.

The road to proper financial planning starts with educating oneself regarding its various aspects. Two terms that you are likely to encounter by and by in this journey are account payable and accounts receivable. If you are still unaware of the terms of the accounts receivable process, you may have to face serious hurdles later. So invest a moment from your busy schedule and learn what they mean right away.

Accounts Receivable Vs Payable

Accounts receivable, more frequently referred to as AR, represents the value of money that a firm is yet to receive from its vendors for the goods and services they have delivered. On the balance sheet, accounts receivable are listed under the current asset. The accounts receivable also includes the money that customers owe for the purchases that they have made on credit.

Keeping a track of your AR is essential as the company’s regular expenses are usually paid out of it. Unless you collect them on time, you will have to break into your reserve to continue functioning.

Accounts Payable, on the other, is the complete reverse of accounts receivable. The payable refers to the money that you are supposed to pay for goods that you have already received or any service that you have taken.

Manage Your Accounts Receivable

For most businesses that fail to take off or are running losses, the problem is usually related to mismanagement of accounts receivable. It is either that they did not pursue their clients to pay them within the set term or the clients underpaid or did not pay at all. Over time this can severely affect the finances of a company, and it may even be forced to declare bankruptcy.

Before that situation arises, take things into your hand. Here are some dependable solutions on how you can manage your accounts receivable better:

Run Financial Checks

When you are a small business, you usually do not have much choice when it comes to clients. Yet carrying out a basic background check can save you from losses later. Before engaging with a new client, check their credit history. Or you can also take feedback from companies they have engaged within the past.

If there is already a long list of unpaid credits, it is likely that you, too, will be another name on that list. Even for the existing clients, keep check of their financial status from time to time.

Go For Clear Payment Terms

While negotiating agreements with your clients, opt for clear payment terms. Even if you compromise to get the deal, make sure you do not endanger your business’ profit. Otherwise, there is no point in walking the extra mile for them.

Say Yes To Electronic Invoicing

Are you still using the traditional run-of-the-mill ways, such as printed bills via post as invoicing? Then it is important to upgrade yourself with the latest technology. Using emails and apps is better for invoicing as they are much more convenient to keep track of. You can even use advanced apps that show your client has received and opened your mail.

So a lost mail can never be an excuse for not paying up.

Final Thoughts

Now that you know both the term and the processes put your knowledge to good use. Remember, the foundation of a successful business lies in taking the proper steps from the first day.