What is Accounts Receivable and its Process

Regardless of the size of an establishment, no one can become profitable without proper management of their finances. Every business owner knows that consistent cash inflow is vital to keep things running optimally.  But without an efficient accounts receivable, you will eventually have to deal with delinquent accounts and overdue payments. Moreover, the best thing about AR services is that it is much more effective and will follow up on invoices in a timely manner. Now we will learn about what is accounts receivable in detail.

What is Accounts Receivable?

The accounts receivable definition is basically accounting for the money a company should receive from the sales of services and goods. Moreover, it is the money for which invoices are being issued but aren’t paid yet. As soon as you are paid for the invoice, you will debit your AR for that money and subsequently credit your cash account.

In order to calculate your profitability, accounts receivable is a must. It provides you with a clear indication of business income. It also becomes an asset because of its representation of money coming into your organization. If you want to determine your profitability, you should add your assets along with the AR and then minus your liabilities. This is what you will owe to vendors and suppliers. It’s quite easy to understand accounts receivable as in the case of profit. If the number is positive, that’s fine, but if it’s negative then you will have to make serious decisions about eliminating liabilities.

What is The Accounts Receivable Process?

Have you ever thought about how the accounts receivable processes really look like? Let us delve deep so that you are able to understand the accounts receivable step-by-step process and its overall impact on your business cash flow.

• Setting up Credit Policies

First step involved in the collection process is to properly identify the credit worthiness of the customer. As a business owner you have to make a clear credit term. This should fully depict the time period of the payment, and credit limit, including the interest rates. Moreover, you will most certainly have to develop a solid credit policy that will lay out all the processes to evaluate debtors via credit checks. Additionally, you will have to ensure that the policy isn’t so harsh that it affects the business profits.

• Invoice Issuing

Next in the accounts receivable process steps are to create a customer invoice. This is to be done once your credit terms are finalized and that invoice should include the following details-

a) The decided date on which the customer will have to pay the balance.

b) What will the customer pay for which also includes the relevant product details and usage?

c) Necessary details about the pricing i.e., discounts on payments.

d) Proper instructions about the business’s payment methods and how to pay.

e) To ensure internal categorization a unique invoice number including tracking.

After creating the invoice, it should be sent within the time frame. In case you don’t give opportunity to your customers for making payments, that will create delays for the overall accounting processes and finance. In the end, you will have to fully optimize the invoice by offering subscriptions. Your business will be able to maintain a good cash flow if the customer pays upfront.

• Collecting Payments

One of the most vital steps in this process is to collect the dues. As soon as the invoice gets to your customers, then you will have to move proactively and develop an effective collection strategy with them. Moreover, your AR collection efforts should include the following-

a) Eliminate any risks arising due to failed payments or late payments.

b) Properly segmenting individual customers according to the history of their payments so as to build collection map.

c) Frequently monitoring the engagement of the customers and setting up personalized workflows

d) You will have to empower the AR team with email templates. These templates should be predefined so that they are able to edit them quickly and use.

• AR Report Maintenance

In order to fully understand your AR process when it comes to its effectiveness, you will have to maintain the records of payments that are received or due. These are some insights that will surely provide you with clarity, which in turn will result in enabling you to make informed decisions.

Why opt for AR Automation?

It is a very well-known fact that manual AR can lead to many missed opportunities, especially if your business is growing. Therefore, fully automating the entire process can have a significant effect on your business which will resolve challenges easily. Let us take a look at a few advantages of AR automation-

• Saves time and effort by reducing the need for manual interventions as well as streamlining your processes.
• Enhance the cash flow by fully ensuring simplified collection management and accuracy of invoice content.
• Improve the collection efforts with automated payment reminders, payment entries, etc.

These are only a few advantages of AR automation. These will surely give your team the required resources that will have to focus on important tasks. Moreover, with this system, you will be able to resolve many issues that usually come from consistent cash flows, overdue invoices, or creating reports which are highly accurate. Now will be the time to get rid of your old-school processes and integrate automation into your existing system to get fruitful results for your business.

In Conclusion

Assuming you now have understood what is account receivable, still you need to think thoroughly about this. This is because keeping track of your receivable is really very cumbersome process. It is the balancing act to collect the money with little effort and on time. If you are also looking to eliminate manual accounts receivable, then hire a reputed and experienced Accounts Receivable services provider that will assist you to build a perfect and optimal accounting process. If you fail to do so, then be prepared to get delayed or even lose payments. This in turn can have a big impact on the growth of the business which is of course not a good sight for any owner.