Definition: Accounts Receivable is the money that a company is waiting to receive from its customers. When a company sells something or provides a service, it creates a bill for the customer.
Managing Accounts Receivable is important for businesses to keep track of the money they expect to receive and ensure they get paid on time.
Here's a simplified overview of the typical Accounts Receivable process:
After providing goods or services, the company creates and sends invoices to customers, specifying the amount owed and payment terms.
Customers receive and acknowledge the invoices, understanding the amount due and the payment deadline.
The company records the issued invoices in its accounting system, updating the Accounts Receivable ledger.
As the payment deadline approaches, the company collects payments from customers through various methods, such as checks or online payments.
The collected payments are reconciled with the recorded invoices to ensure accuracy in financial records.
If customers fail to pay on time, the Accounts Receivable team follows up with reminders and statements, encouraging timely payments.
In cases where customers cannot pay, the company may need to manage bad debts by assessing the financial impact and exploring possible solutions.
Maintaining positive relationships with customers is crucial. Clear communication and addressing any payment concerns contribute to a healthy business-customer relationship.
Regular reporting on Accounts Receivable activities provides insights into cash flow, outstanding payments, and helps in financial planning.
All relevant documentation, including invoices, payment receipts, and communication records, is appropriately archived for auditing and reference.
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