To be simple and direct, Accounts receivable is the money that is owed to a company by its customers or clients against goods or services provided. It also can be explained as the outstanding invoices a company possesses. The debtors can be individual customers or a company and there will be a term of agreement regarding the payment of credit between the company and the debtor. Account Receivables or otherwise known as ‘receivables’ are considered as current assets of a company as it is expected to turn into cash within a specified timeframe. In short, it is the amount a company is gaining in all terms and this especially holds true if you’re looking for profitable growth.
To cite an example, the Autobest tire company in the United States receives an order for tires worth $5000 from Fast auto Inc. The order is delivered by Autobest tires and the invoice worth $5000 is given to Fast Auto Inc. The supply is done on a credit of 90 days period. This $5000 comes under Accounts receivables for Autobest tires. Once the same amount is paid to Autobest tires by Fast auto Inc, the Accounts receivables become Zero while the cash with the company rises by $5000.
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Terms and conditions regarding Accounts Receivables
These days, it is clear that whenever a product or a service is sold on credit, the company that is providing the goods or services will fix some terms for Accounts Receivables. These terms and conditions include the number of days by which the debtor will honor the commitment of paying the amount of the bills, say within 30, 60, or 90 days. In case if the bill is not paid within the stipulated time frame, a late fee is charged by the company which also will be mentioned in the Accounts Receivables terms and conditions. In a lot of ways, this problem can be fixed.
Accumulation of Accounts Receivables of a company shows a danger sign regarding the credit collection strength of the company. If in case, the Accounts Receivables are less, which shows the company’s rigidity on the payment terms. All the companies always promote ways to collect the Accounts Receivables without disturbing the relationship between the customers, whether it is individual customers or corporate. If the company does not focus much on its AR then it will be forced to write off its receivables which will be a huge loss for the company.
The significance of Accounts Receivables Turnover Ratio
Accounts Receivables Turnover Ratio which is also known as the ‘ART ratio’ is another significant factor that intensively tracks and measures how strong the Accounts Receivable collection is. The ART ratio shows you a clear picture of how well you are managing the credits that you provide to your clients and customers and how quickly these debts have been paid back by the clients or debtors. While taking a look at the details, a relatively high Accounts Receivables Turnover Ratio is candid proof of a professional credit policy of the company. Another reason can be the excellent quality of the clients with whom the company will be doing their business with. It’s important to remember that a lower Accounts Receivables Turnover Ratio refers to the opportunities to collect all the old and recurring Accounts Receivables urgently. This is where the company has to give more emphasis as it will result in a drastic loss for a particular company.
Collection processes involved with Accounts Receivables (AR)
The tracking of Accounts Receivables is typically done through the invoices. The company issues an invoice regarding the details of the goods and services provided for the credit, the amount, and also the due date within which the credit payment has to be done. This helps the company to have anticipation regarding the incoming credit amount, its sources, and also regarding the late or non-paying customers. If it becomes candid that the Account Receivables will not be paid by the client, the same amount will be written off as a bad debt expense or a one-time charge. There will be certain challenges you might run into especially, receiving the payments. You might also need to make sure regarding the collection of Accounts Receivables.
Companies can now manage Accounts Receivables without providing any cuts to credit card services from Master, Visa, etc by using OnlineCheckWriter. There are other alternatives to explore. However, its downside also has to be considered. Absolutely no transaction fee is involved and now you can receive payments of any amount of money instantly from your clients and customers.
Watching closely, in a lot of ways, the process is really easy. Payment checks are sent by email right away and these checks can be taken to check prints using any printer. You can also request or remind regarding checks. The attractive feature is that it can be set up for one-time payment, recurring or open. There will be no requirement to wait for the shipment of pre-printed checks. There will be no need to deal with special ink and a printer.