All about the receivables management.
Receivables are very quintessential to manage credit terms of the sales of the business. Business needs to make sure that its customer pays within time while maintaining a cordial relationship with them.
So, let us understand more about receivables and their management.
What is receivable management?
Receivable management also known as accounts receivables refer to the amount due by the customer for the sale of goods on credit. It means the company has given the credit facility its customer a time for the payment of the amount. It represents the right of the company to receive the amount due from the customer after the completion of the credit period.
From the accounting viewpoint, the customer who has purchased goods on credit is known as sundry debtors. The accounts receivables are shown under the head of current assets in the balance sheet.
Since many companies sell on credit and have a considerate amount of receivable so, there are various complexities in AR. Thus, it becomes quite important to collect the receivables on time .they also are the source of working capital for the business.
Receivables process
Managing accounts receivables includes the following process:
- The first and foremost thing is to check the credibility of the customer before lending the goods or services on credit. The term and conditions of the credit sale must be reviewed.
- Draft credit policy for the customer regarding credit term and condition, time, payment method, etc.
- Generate an invoice to the customer with all details and agree on terms to the customer.
- Monitoring of any delay or possibility of non-payment from the customer.
- Minimize the risk of bad debt of the receivable outstanding and continue to build the customer relationship.
- Timely addressing the grievances of the customer.
- Reducing the receivables by the amount of the payment received from the customer.
Benefits of receivables management
- Effective management of accounts receivables provides numerous benefits to the business. Grab the following benefits of accounts receivable:
- Strengthen the liquidity position of the firm.
- Deploy proper control over cash and other sources of working capital.
- Establish a friendly and cordial business relationship with a customer.
- Boost sales volume.
- Improve the profitability of the business.
- Reduced the risk of bad debt.
- Help in addressing the gap between credit sales and receipt of payment from the customer.
- Customer satisfaction by handling their complaints in time.
Why accounts receivable management?
Accounts receivables are an important asset of the business; and also the source of working capital essential for the smooth functioning of a company. When a business sells goods on credit, the inventories reduce and need an asset to balance its financial statements.
Accounts receivables are a substantial part of the organization’s balance sheet and cash-inflows in the books. The idea behind managing the accounts receivable is to facilitate credit to the customer, ease the transaction process, and establish strong credit relations between the business and its customers.
Complexities in Accounts receivables are taking away time from your business. Managing receivables aren’t a headache anymore.
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