{"id":4155,"date":"2020-02-27T05:52:25","date_gmt":"2020-02-27T05:52:25","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=4155"},"modified":"2024-12-19T18:30:43","modified_gmt":"2024-12-19T13:00:43","slug":"tips-to-manage-accounts-receivable","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/tips-to-manage-accounts-receivable\/","title":{"rendered":"Accounts Receivable: Definition and Tips to Manage"},"content":{"rendered":"\n<p class=\"has-drop-cap\">To run a successful business, the company needs to have\nsustainable working capital. Sustainable working capital offers a company with\nthe <strong><em>flexibility\nto expand and enhance its operations, improve liquidity and respond to\ndemanding economic conditions<\/em><\/strong>. The goal of working capital management\nis to make sure that a company is able to continue its operations and satisfy\nboth maturing short-term debt and upcoming operational expenses. Managing a\nworking capital involves managing inventories, accounts receivable, accounts\npayable and cash. In this blog, we will focus on the importance of Accounts\nReceivable in managing sustainable working capital.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/tips-to-manage-accounts-receivable\/#What_is_Accounts_Receivable\" >What is Accounts Receivable?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/tips-to-manage-accounts-receivable\/#Importance_of_Accounts_Receivable\" >Importance of Accounts Receivable<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/tips-to-manage-accounts-receivable\/#Accounts_Receivable_Pitfalls\" >Accounts Receivable Pitfalls<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/tips-to-manage-accounts-receivable\/#Tips_to_Manage_Accounts_Receivable_Effectively\" >Tips to Manage Accounts Receivable Effectively<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/tips-to-manage-accounts-receivable\/#Take_Away\" >Take Away<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_Accounts_Receivable\"><\/span>What is Accounts Receivable?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"shadow1\">Accounts Receivable (AR) is the due payment which the company shall receive from its customers those who have purchased goods and services on credit. Generally, the credit period is short, which ranges from a few days to months or in some cases, maybe a year. <\/div>\n\n\n\n<p>A company sells its goods and services both in cash and credit. When a firm extends the credit to the customer, the sale is said to be done when the invoice is generated but usually, a time period is provided to the customers for the payment of the due amount. This process of conducting business on credit terms gives rise to Accounts Receivable (AR) in the <a href=\"https:\/\/corpbiz.io\/learning\/basic-financial-statements\/\" title=\"Basic Financial Statements\"><strong>financial statements<\/strong><\/a>. Account Receivables (AR) are considered as current assets on the balance sheet. The amount of accounts receivable depends on the line of credit which the customer enjoys from the company.<\/p>\n\n\n\n<div class=\"shadow1\"><h4>Let us understand what Accounts Receivable is through an example:<\/h4><br>\nLet\u2019s say you own a business of guitars. A customer gives you an order of 20 guitars. The amount payable for 20 guitars is 2 lakh rupees. Now, when you generate the invoice for that amount, the sale is recorded. However, to make the payment, you extend the credit period of 30 days to the customer. Now, for the next 30 days, till you receive the payment, the amount of Rs 2 lakhs becomes your account receivable. If the customer isn\u2019t able to pay the amount on scheduled time, you can charge a late fee. Once the payment is received the cash segment in the balance sheet will increase by Rs 2 lakhs and the accounts receivable will be decreased by the same amount.\n <\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Importance_of_Accounts_Receivable\"><\/span>Importance of Accounts Receivable<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><a href=\"https:\/\/corpbiz.io\/accounts-receivable-services\" title=\"Accounts Receivable Services\"><strong>Accounts Receivable services<\/strong><\/a> measures the money that customers owe to a firm for goods and services already provided. They are considered as future assets that can be brought into use whenever needed. However, for accounts receivable to become an asset, the process of converting your accounts receivable into cash should be proactively optimized. Improving accounts receivable helps businesses in freeing up their cash as early as possible and eventually strengthens their working capital. Since accounts receivables form a major part of a firm\u2019s asset, it generates cash-in-flow in the books of the organization. Optimizing Accounts receivable can drastically enhance the aspects of the business. It prevents the capital from going to waste, which in turn increases liquidity. This eventually allows businesses to reduce debt, fund growth and helps them to expand their horizons.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Accounts_Receivable_Pitfalls\"><\/span>Accounts Receivable Pitfalls<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul>\n<li>Often business owners don\u2019t pay much attention to Accounts Receivable which ultimately affects their business negatively. Businesses often prioritize sales and to increase the number of sales, they offer discounts and tend to ignore payment terms. And eventually, such businesses end up providing customers with free financing.<\/li>\n\n\n\n<li>Extending credit to unqualified customers and then not keeping track of it also affects the account receivable process. Poor accounts receivable management creates a kind of ripple effect that virtually affects every aspect of running a company.<\/li>\n\n\n\n<li>If businesses fail to keep a proper track of all the due dates of the payments to be received and much attention is not paid to the accuracy of bills and invoices, this may eventually create serious issues for such businesses.<\/li>\n<\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/basic-financial-statements\/\"> What are the Basic Financial Statements?<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Tips_to_Manage_Accounts_Receivable_Effectively\"><\/span>Tips to Manage Accounts Receivable Effectively<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Following are some of the tips you can follow to manage Accounts Receivable process effectively:<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" width=\"588\" height=\"343\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/image-32.png\" alt=\" manage Accounts Receivable process effectively\" class=\"wp-image-4156\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/image-32.png 588w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/image-32-300x175.png 300w\" sizes=\"(max-width: 588px) 100vw, 588px\" \/><\/figure><\/div>\n\n\n<ul>\n<li><strong>Precise Information of the Customer:<\/strong>&nbsp;Details of the\ncustomer to whom credit has been extended by the business should be maintained\naccurately. Details of their account, address, everything should be up to date.\nAccounts of customers should be audited regularly to check unusual payment\nterms, credit limit etc. Any change in the information of the customer should\nbe documented correctly. If information isn\u2019t added correctly, it slows down\nthe receivables.<\/li>\n<\/ul>\n\n\n\n<ul>\n<li><strong>Effective Invoicing\/ Billing process:<\/strong>&nbsp;The billing and invoicing of customers should be precise and accurate. Although billing seems fairly easy and straightforward, however, many companies often struggle in this area. Some of the common errors made in invoices are related to units of measure, price or incorrect information of the customer. Many fail to generate invoices in time. To solve these issues, an effective billing\/invoicing process should be established.<\/li>\n<\/ul>\n\n\n\n<ul>\n<li><strong>Credit Management:<\/strong>&nbsp;Just to increase the sales, the credit line shouldn\u2019t be extended without  paying a second thought. This strategy often backfires in the long run and is one of the potential problems that arise without proper credit management.<\/li>\n<\/ul>\n\n\n\n<ul>\n<li><strong>Monitor Accounts Receivable:&nbsp;<\/strong>Once the invoicing is complete, it is the responsibility of the accounting officer to ensure that the payment is deposited on time. The officer also issues monthly statements to its clients, which provides hi the information about the amount owed.<\/li>\n<\/ul>\n\n\n\n<ul>\n<li><strong>Proactive Collection:<\/strong>&nbsp;The collection of money should be the priority of any business owner to maintain a positive cash-flow in the company. Businesses should resort to a robust accounting process to make the collection process more proactive. Other than this it should be ensured that the discounts offered should benefit the company and are implemented correctly.<\/li>\n<\/ul>\n\n\n\n<ul>\n<li><strong>Automation:<\/strong>&nbsp;Automation has changed the way the business world operates today. It has made things more simple and cost-effective. The initial cost to purchase good software may be high, but once everything gets set up, the eventual results are extremely positive. Automation simplifies the process of accounts receivable in many      ways such as sending reminders to customers for due payment etc. Moreover, Automation reduces the need for workforce and at the same time, makes payments more secure and quick.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Take_Away\"><\/span>Take Away<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Businesses often prioritize sales and don\u2019t emphasize much on Accounts Receivable. However, poor AR practices cause various problems for businesses. Poor AR practices eventually suck time, money and productivity out of business. Therefore, it is very important for any business owner to pay attention to accounts receivable as they play an essential role in managing the working capital of the business.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/improve-cash-flow-management-in-business\/\"> How to Effectively Improve Cash Flow Management in Business?<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>To run a successful business, the company needs to have sustainable working capital. Sustainable working capital offers a company with the flexibility to expand and enhance its operations, improve liquidity and respond to demanding economic conditions. The goal of working capital management is to make sure that a company is able to continue its operations [&hellip;]<\/p>\n","protected":false},"author":15,"featured_media":4158,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[128],"tags":[359],"acf":{"service_id":"297"},"authorName":"Shubham Chauhan","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/shubham-chauhan.jpg","authorDescription":"A passionate legal content writer, a nature enthusiast, an avid reader, and a part-time thinker. By means of conducting in-depth research on industry related topics, Shubham often builds flawless and intelligible legal content for populace from all walks of life.","postViews":7735,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/4155"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=4155"}],"version-history":[{"count":25,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/4155\/revisions"}],"predecessor-version":[{"id":67955,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/4155\/revisions\/67955"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/4158"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=4155"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=4155"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=4155"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}