Accounts receivable are legally enforceable claims for payment withheld by an entity for delivered goods and / or services that customers ordered but failed to pay. As a rule, they represent invoices issued by the enterprise and delivered to the client for payment within an agreed period of time.
Accounts receivable are recorded in the balance sheet as an asset. This is one of a series of accounting operations related to billing a customer for goods and services that a customer has ordered. They can be distinguished from receivables, which are debts created using official legal instruments called promissory notes.
Accounts receivable are money due to enterprises in a firm for selling products or services on credit.
In most companies, accounts receivable are usually made by generating an invoice and sending it by e-mail or electronic delivery to the customer, who, in turn, must pay it within a specified period of time.
Typically, receivables arise:
- Sales made by business but not paid
- The amount of money received for goods or services
- Amount due at the end of each month varies
The receivables team is responsible for obtaining funds on behalf of the company and applying them to current outstanding balances.
Goals and objectives of receivables management
The main objectives of receivables management are:
- Limitation of an acceptable level of receivables
- Selection of sales conditions that ensure guaranteed cash flow
- Determination of discounts or allowances for various groups of buyers in terms of compliance with payment discipline
- Acceleration of debt recovery
- Reduction of budgetary debts
- Assessment of possible costs associated with receivables, that is, lost profits from non-use of funds frozen in receivables
Accounts receivable management consists of the same non-specific management functions of any other type:
- Control and analysis
Accounts receivable planning is a process of preliminary financial calculations, evaluations of management decisions. For the planning of accounts receivable to be real, and therefore effective, it is necessary to formulate an organization’s strategy, determine a sales policy, and select rational receivable parameters. Planning the amount of receivables – was, is and will be one of the most important.
Organization of receivables management, ongoing work with receivables should be a mandatory moment in the sales department and will require close attention of managers and managers. The definition of approaches to receivables management, stages and methods – a problem that does not have a clear solution, depends on the specifics of the enterprise and the personal qualities of the management. Since the management of receivables is a component of the enterprise management system, the process of managing it can be carried out in stages. In addition, the management of receivables occurs over time, and it is natural that it must be represented in the form of some stage system.
To manage receivables, transparent is needed. complete, timely and current information about debtors, payments and debts: data on invoices issued to debtors that are not paid at the moment; delay in payment for each of the accounts; the amount of bad and doubtful receivables, estimated on the basis of standards established by the company; counterparty credit history (average delay period, average loan amount). As a rule, such information can be obtained by studying the accounting system.
Motivation means a set of administrative, psychological aspects that determine the behavior of the debtor, manager of your company as a whole.