qasolved-logo
  • Home
  • About
  • Trending

    COMMON QUICKBOOKS ERRORS

    • QBDBMGRN Not Operating Problem
    • QuickBooks Error 6000
    • QuickBooks Error H505/ H505 Error
    • QuickBooks abort error
    • QuickBooks has Stopped Working
    • QuickBooks Unrecoverable Error
    • QuickBooks QBW32.exe Error
    • QuickBooks script error
    • QuickBooks Server Busy Error

    QUICKBOOKS HOW-TO

    • How to Delete a Deposit in QuickBooks?
    • How to Write Off An Invoice In QuickBooks
    • How to Change QuickBooks Password?
    • How Does QuickBooks Work ?
    • How To fix QuickBooks Error 15222?
    • How to reprint checks in quickbooks?
    • How to Print W2 in QuickBooks Desktop and Online?
  • Community
    • Forums
  • Blog
  • Contact
1-855-875-1223
qasolved-logo
  • Home
  • About
  • Trending

    COMMON QUICKBOOKS ERRORS

    • QBDBMGRN Not Operating Problem
    • QuickBooks Error 6000
    • QuickBooks Error H505/ H505 Error
    • QuickBooks abort error
    • QuickBooks has Stopped Working
    • QuickBooks Unrecoverable Error
    • QuickBooks QBW32.exe Error
    • QuickBooks script error
    • QuickBooks Server Busy Error

    QUICKBOOKS HOW-TO

    • How to Delete a Deposit in QuickBooks?
    • How to Write Off An Invoice In QuickBooks
    • How to Change QuickBooks Password?
    • How Does QuickBooks Work ?
    • How To fix QuickBooks Error 15222?
    • How to reprint checks in quickbooks?
    • How to Print W2 in QuickBooks Desktop and Online?
  • Community
    • Forums
  • Blog
  • Contact
1-855-875-1223

What is Accounts Receivable? – A Comprehensive Guide

Posted on May 14, 2020 Posted in Accounts, What is
What is Accounts Receivable? – A Comprehensive Guide

The size of a business doesn’t matter when it comes to handling finance. As your business grows and you continue processing more transactions, you need to manage both Accounts Receivable and Account Payable. If you are not following so, this indicates that you are at risk to pay your bills or not being paid from your vendors for all goods and services you provide. Let’s try to understand “What is accounts receivable” in detail via this informative post.

Having deep knowledge about “What is account receivable?” can assist you to improve cash flow management, maintain flexibility, and capitalize opportunities. You must aware of the strategy to run a successful business is to establish an effective account receivable (AR). Even though, many business owners will be unable to take a methodical approach to the situation. So, it will be better to devote time and effort to improve and get proper knowledge about “What is meant by account receivable?”

What is Accounts Receivable (AR)?

Accounts Receivable or AR is the money that a business is owned. Simply, accounts receivable shows the credit amount that has been extended to a customer in exchange for goods or services. Generally, it is different than the credit a financial institution offers. Accounts receivable is an asset that a business can leverage to finance their functions.

It is significant to calculate the balance in the accounts receivable account to ensure timely collection of outstanding debts. Further, we will talk about the process to manage accounts receivable efficiently.

Important Note: Accounts Receivable (AR) is an asset account, not a revenue account. But, you have to record revenue and account receivable at the same time under accrual accounting.

What is the Importance of Accounts Receivable?

It is obvious to get maximum profit in case of having a lot of customers. However, if you are getting late payments or aren’t getting payments at all, then this can be harmful to your business. The main reason to get stuck in issues related to cash flow is getting late payments from your customers.

Here, we have discussed some of the benefits of knowing about account receivable:

  1. You will be able to earn interest from a bank deposit.
  2. Another benefit of accounts receivable is “having enough cash” to run your business for a long time.
  3. You don’t need to spend too much on chasing your clients.
  4. After understanding accounts receivable, you can make your receivable turnover ratio better.
  5. Assist you to manage company financial statements.
  6. You will have a good relationship with your customers that will help you in the growth of your business.
  7. It helps in increasing the overall sales of the business.

How to Minimize Accounts Receivable (AR)?

As we understand, keeping a record of the money that will be added to the assets in the financial statement of the business is called Accounts Receivable (AR). You may know that the lower balance of accounts receivable will be better for your business. Hence it is mandatory to minimize your accounts receivable and increase the cash flow for the business. Below are some methods for the same.

  • Check your outstanding bills: If you know all about accounts receivable, then it will help you to understand how much money is due to collect from your customer. It is a must to have all the required information in one place so it will help to make instant decisions for the growth of your business.
  • Set Expectations: You are required to set a clear deadline whenever get connected with your clients regarding a bill or payment. This will help you to get payments soon. In case of getting late payments, you need to get in touch with your clients who always delay in payments. You are required to set the expectation in the way that no client can say “you have never told me before”.
  • Communicate with your clients: Your priority is to collect your payments immediately so that you can pay your suppliers on time. And, this will help you to make a good relationship with your suppliers too. If you have a bill of someone that is coming to the end, then you must need to remind them to pay instantly. This will surely help you to make a balance between accounts payable and accounts receivable.

The Procedure of Collecting Outstanding Debts

You must aware of the importance of accounts receivable to improve the cash flow of your business. Including this, your most top priority must be collecting payments. Invoice statements should be reviewed regularly for each outstanding account.

Here are the additional methods to collect outstanding debts timely:

  1. You should not delay making calls especially with clients who have a history of paying late.
  2. Keep including a prepaid payment envelope with each invoice to curb late payment excuses.
  3. Try to get credit references for new clients and ensure them out in detail before permitting to extend the client credit.
  4. You must review the invoice statements on a regular basis. In case, debt has been on your books for so long, then it should be required to collect your payments as soon as possible.
  5. If any of the methods did not help you in collecting the amount, then you can connect with collection agencies as a last resort.

Considering the aforementioned methods, you can collect your outstanding debts effectively.

Methods to Get Payments Faster From Your Customers

In case, you are getting late payments from your customers, then this can be stressful and time-consuming. However, if you try to deal with such issues timely, you can prevent yourself from such situations. The following is a list of some methods that you can apply to remind your customers to pay you sooner.

Method 1: Provide them a Financial Incentive

The first thing you need to do is giving a financial incentive to your customers. Furthermore, you need to offer them a discount for paying invoices early. For instance, offer them a 2% discount in the case of paying within 15 days. In this way, you can get your payments faster.

Method 2: Schedule regular reminders

You can also remind them about a late payment via a phone call. Moreover, you can also remind them by sending them an email at regular intervals like after 15-30 days, 45 days. Such scheduled reminders can help to get your payments faster.

Method 3: Make a credit policy

Extending credits to your customers might hamper your business. So it is advisable to stop extending credit to your clients by making a credit policy. In this way, you can reduce the business risk that usually causes more issues and problems.

You are required to develop clear guidelines in a case of unable to extend credit to your customers. And, don’t feel hesitant to enforce them even this indicates to turn down a few peoples. This will also help you to make your new customers understand your credit policy and they will remember to make your payments on time.

What Can You Do In A Case of Not Getting Payments?

There can be instances in which you have applied all of the aforementioned methods, but still not get payments from your customers. In such situations, you don’t need to fret at all. We would like to tell you that there can be two situations; either you don’t get payments or there is no scope to get payments at all.

We will explain both of the situations to make you understand more about these situations.

Situation 1: When you have applied all of the aforementioned methods, but still have not got your payments, then apply the following methods to get rid of this issue:
  • Add their account into a long-term note

 In case, you have a good relationship with your customers who make late payments, then it will be better to add their account receivable into a long-term note. In such a situation, you should record the accounts receivable as a loan (that is due more than 12 months) in your books.

  • Restrain customers from availing of goods and services

In the case of getting late payments, most of the companies will stop delivering goods or services to their customers if the due date of the bill is more than 120, 90, or 60 days. In case of restraining those from getting services can send a message to make payments on time. And, this will also help to convey your customers that you are not interested to extend your business with those who break the rules.

  • Take assistance from a collection agency

If for any reason, the aforementioned methods did not help you to get your money on time, then you need to hire a collection agency. Additionally, you may also have an option to connect with a collection agency in case of failing to contact your clients. Including this, we recommend getting in touch with your customers before hiring a collection agency and try to provide them a chance to make your payments.

Well, it will be always better to compromise with your customers. Since this is not a time taking process and less expensive option. Along with this, you should know that collection agencies charge a big amount of the collectible amount.

Situation 2: When there is no scope to receive your money at all, go through the following:

This situation is mainly known as “Bad Debt”. This may take place when the costs of collecting the debt start reaching the total value of the debt. At this time, you may have to think about writing off the debt as “Bad Debt”. This indicates that your customer is no longer financially stable to pay your money and declared as bankrupt.

According to IRS, the bad debts consist of the terms such as credit sales to customers, business loan guarantees, and loans to clients and suppliers. While calculating taxable income, business deducts its bad debt from gross income.

Final Words…!

Finally, we hope that you have understood all about “What is accounts receivable”. Generally, managing outstanding debts is key to keeping your business running for a long time. It not only means getting the money you owed but also having a good rapport with your vendors. You can also avail of numerous benefits of Accounts Receivable. If you are still trying to look for more information about accounts receivable, then get in touch with our team by dialing our toll-free Support Phone Number..

We, at QASolved, provide you all the required information regarding all types of accounting services. Not only you can get support related to accounting issues but also we handle bookkeeping, filing taxes, and manage business finances.

Frequently Asked Questions (FAQ’s)

Q1: Can you consider accounts receivable as revenue?

A: Well, you have to record revenue and account receivable simultaneously under accrual accounting. However, accounts receivable comes under an asset account.

Q2: Where you can get accounts receivable?

A: In the balance sheet or chart of accounts, you can find accounts receivable under the section of “current asset”.

Q3: What do you mean by “allowance for uncollectible accounts” or “bad debt”?

A: When your client is incapable to pay your due amount and declared as bankrupt, this situation is called bad debt.

Q4: Where you can add accounts receivable in the balance sheet?

A: When accounts receivable increases, you need to record it on the debit side of the balance sheet and vice-versa. As you may know, accounts receivable increases with the increase in cash flow and decreases when you haven’t collected your payments from your clients.

Q5: What is the role of accounts receivable in the business?

A: The main function of accounts receivable is to create an invoice for service performed. Along with this, AR helps you in collecting payments from your customers on time.

Q6: Which status of accounts receivable will be better? Higher or Lower?

A: Generally, if you have a lower balance of accounts receivable, this indicates your customers are paying you immediately. So having lower AR will be better.

Q7: What is the formula to calculate accounts receivable (AR) turnover?

A: You need to start by adding the beginning accounts receivable and ending accounts receivable. And then, divide the answer by 2. After that, divide the result into the credit sales for the year.

Q8: What are the types of accounts receivable?

A: The types of accounts receivable are: Accounts Receivables, Notes Receivables, and other receivables like rent, term deposits, and loans.

Q9: How you can lessen accounts receivable?

A: The prime to reduce your accounts receivable is to “make credit policies”. Additionally, you can also reduce payment terms to minimize accounts receivable.

Q10: What the process for accounts receivable includes?

A: The procedure for accounts receivable consists of setting up a process for extending credit, making invoices, manage transactions, and do accounting roles.

Summary
What is Accounts Receivable? - A Comprehensive Guide
Article Name
What is Accounts Receivable? - A Comprehensive Guide
Description
You should aware of “What is Accounts Receivable?”If you are interested to know more about AR management, then go through the following informative blog.
Author
Taylor Andrew
Publisher Name
QASolved
Publisher Logo
QASolved

Post navigation

Previous Post is ‹ How to Fix TurboTax Updates Not Working Error?
Next Post is How to Fix TurboTax Form 2210 Error? ›

Recent Posts

  • How to Zero Out Payroll Liabilities in QuickBooks May 20, 2022
  • How to Customize a Quickbooks Pay Stub Template? May 16, 2022
  • QuickBooks File Too Large : A Complete Guide 2022 May 12, 2022
  • How to Change Invoice Number in QuickBooks Desktop? May 9, 2022
  • How to Resolve Intuit Printer Library Error? May 6, 2022

Archives

  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • February 2021
  • January 2021
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018

Categories

  • Accountant
  • Accounts
  • Bank Reconciliation
  • FreshBooks
  • How To
  • IRS Form
  • News
  • QuickBooks
  • QuickBooks 2020
  • QuickBooks Desktop
  • QuickBooks Enterprise
  • QuickBooks Errors
  • QuickBooks Mac
  • QuickBooks Online
  • QuickBooks Payroll
  • QuickBooks Point of Sale
  • QuickBooks Premier
  • QuickBooks Pro
  • Quicken Support
  • Sage
  • Sage Errors
  • TurboTax
  • TurboTax Errors
  • Wave
  • What is
  • Xero
qasolved-logo

QASolved is a leading QuickBooks Support Company in USA. We support small and large business firms in solving the queries and errors related to QuickBooks Accounting Software. Our team of Certified QuickBooks Specialists has extensive experience in resolving an issue with accuracy and efficiency.

Menu

About
FAQ's
Blog
Contact Us
Community forums

Services

Quickbooks Proadvisor Support
Quickbooks Mac Support
Quickbooks Online Support
Quickbooks Enterprise Support
Quickbooks Desktop Support
Quickbooks Payroll Assistance

Address

  • 2566 East 6th Street Brooklyn, New York 11235
  • +1-855-875-1223
  • [email protected]

Follow Us

Facebook-f Pinterest Youtube

Disclaimer

QASolved is an independent technical support service provider website that doesn’t claim to be the official representative of any of the logos, trademark and brand names of Accounting Softwares. The logos, trademark used in website belongs to their official representative. The piece of information which is provided in the website is complete and unique. Besides, we do not accept liability. We at QASolved provide paid support and help you in dealing with particular version of QuickBooks, Quicken and Xero etc. The remote technical support services will also be provided by us to our clients.
Terms and Conditions
Refund Policy
Privacy Policy
Copyright QASolved.com | Community Forums. All Rights Reserved.