Steps for Improving Accounts Receivable Process

You need to set up procedures for accounts receivable if you extend credit to your customers. Account receivable arises when you allow customer to take immediate possession of a product or receive service in return for a promise to pay in future. In other words, this means you allow them to take possession of your products before they pay you.

If your business accepts credit cards, credit card company manages risk. But if customers are going to pay with cash or cheques, you must manage verification of payments and risk. X Trustworthy Source US Small Business Administration, US government agency, focuses on supporting small businesses. The Go to Source accounts receivable services includes setting up procedures for extending credit, generating invoices, maintaining records of payments due and payments receive, and performing accounting functions.

What Is an Accounts Receivable?

Its vital that you stay on top of your Accounts Receivable balances. This way, you can make sure that customers are reminded when payment due dates draw closer as well as follow up when payments are late.

If you are using Accounting software, you can run a weekly Accounts Receivable report to see which accounts are past due and which will soon be due. This can help you collect past due accounts. Proper Management of your Accounts Receivable balances is important.

Accounts Receivable For Business Owner

If you re new business owner, or have recently switched accounting methods from cash to accrual accounting, you may not be familiar with accounts receivable. Accounts receivable plays an active role in the accounting cycle.

Accounts receivable totals directly affect your net income since they are considered revenue, but subsequent collection of any receivables balances do not affect your retained earnings, since they are already part of your revenue total. In addition, accounts receivable is permanent account and is not affected by closing entries. Sending an invoice to your customers promptly helps to ensure that payment will be made promptly.

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