Accounts Receivable: Definition, Types, Features and MORE

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When you hear about Accounts Receivable You should know that it is about any sale or provision of some good or service that you can recover in money through partial sums. Indeed, it is what you are thinking, they refer to those documents that you know as bills of exchange or promissory notes.

You should know that it is one of the most important assets you can count on; since, after cash in an economic or financial entity, it is the most liquid asset. It is a specialized subject that we are sure you need to know. So, get ready to comfortably start reading what we have for you.

Keep reading!

Origin are Accounts Receivable?

As you will realize by its own name, accounts receivable is a concept of managing the balances that you have to collect, related to the present and future profits of your company. Every professional in this area will seek to control all the payments they receive.

We think that you will find it attractive to know that it is a method that was introduced in accounting to implement ways to attract new customers and retain existing ones, as well as achieving success and efficiency.

These balances to be collected can originate in different ways. In any case, you should know that it creates the right in all companies or economic entities to require a third party to pay the outstanding amounts. In this way, you have the right to recover what was sold on credit.

So do not lose sight of what they are about enforceable rights arising from sales, services rendered, granting of loans or any other similar concept.

What are Accounts Receivable?

It is important that you know that you are accounts They are classified according to their origin. Those that are in charge of:

  • Customers
  • Affiliated companies
  • Employees
  • Others

It is necessary that you know that you must keep them separate from the accounts that come from sales and services of another origin.

You must be alert with the rights enforceable by these concepts, which make up your working capital. These have short-term maturities and collection must be completed in one year or the entity’s short-term financial cycle.

Ultimately, accounts receivable are resources of your company that will be converted into cash at the end of the financial cycle in the short term. Its importance lies directly depending on the rotation of your business and the competition.

Keep in mind that there are cases of cash, cash and credit operations and in others the main business is credit. If there is no competition in your field, investing in accounts receivable is usually not important.

In certain lines of business, in perishable products, although there is high competition, operations are cash, such as: milk, bread, legumes and products related to food from the basic basket.

What Affects Accounts Receivable?

We can tell you that accounts receivable represent a key factor for your business, as their mismanagement can lead to bankruptcy. That is why we advise you to keep an effective control of the clients who owe you.

It is essential that you have a secure collection system that does not lose sight of the financial objectives of your company. In fact, find out well, but we anticipate that they exist software that will help you to have an optimal follow-up of these accounts. In this way you will be able to be aware, in real time, of your cash flow based on the expiration dates of your clients.

We know that as an entrepreneur you seek to increase your sales and retain customers, and that for this you grant credits. The issue is what happens with the late payment or late payment. Well, in effect, it will affect your income and put the financial stability of your company at risk.

That is why it is so key that you take care of the collection. Keep an eye on your statistics, because sometimes accounts receivable can sometimes exceed 25% of the company’s assets. That is a quarter of your company’s money does not exist because it is still to be collected.

Proper management of accounts receivable will help you have a healthy cash flow so that you meet your financial commitments: payment of salaries, cancellation of suppliers, service debts, credits and investments.

If you have good control of your accounts receivable, you will have better control of customers: who has paid you and what they owe you. With a controlled collection you will avoid the risk of not charging for not knowing the expiration date or the credit limit that you can offer. In addition, You will know if you can continue offering credits to certain clients, discounts and other privileges.

If you don’t take the necessary care in this important matter, there will come a time when it will spiral out of control. You will affect your cash inflows until you reach a decrease in liquidity and therefore, you will have difficulty meeting your financial commitments.

Their Types

Keep in mind that accounts receivable are classified into two types:

  • Short term: are those that need immediate availability within a period of no more than one year. You must present them in the Statement of Financial Position as a current asset.
  • Long Term: refers to the ditches that are available for more than one year. You must show these types of accounts outside of non-current assets.

The measurement

Now it is our turn to tell you how to measure accounts receivable. Read the following:

  • Accounts receivable will be measured at historical cost, and will be recorded at the value expressed in the invoice or equivalent collection document.

If the bad experience occurs that you are not sure of being able to recover an account receivable, You must establish an account that shows the deterioration and thus reduce the respective accounts receivable.

If you need greater control of accounts receivable in your company, as well as take their measurement, you should help with technology. exist softwares administrative for it. From the issuance of electronic invoices to the issuance of account statements of your clients to establish effective collection actions, this type of technological support will help you enormously.

Monitoring clients, keeping account statements up to date, knowing the age of balances and the collection forecast will be measurements that They will allow you to know more precisely what is the best time to set payment dates for your customers. In this way you will ensure a cash flow in your company and you can decide on investments for the growth of your business.

Importance of Accounts Receivable

In order to conclude today’s topic, we want to tell you that the Accounts Receivable they are of sum relevance for your company. These represent the rights that you have over your clients to obtain benefits, either through the sale of merchandise or the provision of services.

Through this system, you will be able to have an inventory of these accounts so that you can offer your customers new payment methods, such as credits or other forms that will also benefit your company.

The main advantages of accounts receivable are the following:

  • You will be able to collect these rights during the agreed term.
  • You will have the necessary information to evaluate the credit and financial history of your clients.
  • With them you can request references to carry out the accounts.
  • You will establish the terms of interest payments and benefits for punctual payment.
  • You can use various payment methods during the process.

In addition to the above, you will get important benefits from managing accounts receivable:

  • You will have all the ability to anticipate a possible financial crisis.
  • You will be able to help in the general control of the cash flow.
  • You will improve the planning of the collections.
  • You will have the necessary information to analyze accounts receivable and the delinquency rate of clients.
  • You will get to know your customers better, if they are the ones who pay on time you can give them a differentiated treatment.
  • You will have how to compare accounts receivable with accounts payable to understand your cash needs for the following months.
  • You will manage the need for legal or administrative actions in cases of constant non-compliance.
  • You will be able to consider the dates and amounts receivable, as well as the discounts granted and the interest received.

As you well know, today it is common for people to have different means of payment to cancel their accounts. Therefore, it is necessary that your finance staff and the administrative manager are aware of the accounts to know if there is the possibility of carrying this business model. Research on innovations and technological advances in this area will be a great guide.

We know that not all entrepreneurs have the possibility, or want to have a financial management team. We are sure that this is not your case. Therefore, we prepare all this material so that you are encouraged to gain the upper hand on the subject.

Thanks for reading!

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