Accounts Receivable: Definition and Best Practices

Businesses who sell goods and services on credit have accounts receivable. This is the amount of outstanding invoices owed to the company. For the company, it is an asset, but still bears some risk. Not every customer will pay and some will pay late. Even those clients whose invoices are in good standing represent a period of time when a company has issued goods or services of value but have yet to receive payment.

Therefore it is essential to properly represent accounts receivable on your financial documents. Successful businesses also work to reduce the amount of outstanding A/R in order to improve cash flow. Techniques to do this help keep the business on solid financial footing while also remaining on good terms with clientele.

Companies should think in-depth about how they choose to manage their A/R, in particular the criteria for extending credit to customers. This can make or break these businesses over the long term, as they need both the asset of the A/R while also managing the delicate relationships they have with those who bring money into the operation.

1. Understanding Accounts Receivable 

Accounts receivable is typically held by companies that invoice for goods or services to be paid at a later date. Cash businesses, or those who receive payment at the time of delivery of the good or service, won't have an accounts receivable. A consumer-facing retail shop that sells goods for immediate payment, for example, likely won't have A/R.

Businesses who deliver goods and then receive money are A/R businesses. The wholesaler who supplies the retail shop, for example, likely has A/R if it gives the shop a set number of days to pay. Most A/R invoices come with terms such as "Net 30," or "Net 15," indicating the period of time the customer has to settle the bill. If the bill is not settled, the customer may have to pay late fees or interest.

A/R is an asset, based on the fact that the customer is legally required to pay. If the customer does not pay in time, the company has the right to take steps to recover the debt. The initial stages may include additional charges. Collection activity may occur if the invoice is outstanding for an extended period of time. Since A/R is due within the current year, it is recorded as a current asset.

2. Reporting A/R 

A/R is an important asset. For some goods or services companies who regularly extend credit to customers, it may be one of their largest assets. It is recorded differently depending on the accounting method. Cash based accounting records the asset once payment comes in. Most companies, however, use accrual based accounting, where the sale is recorded as an asset as soon as the invoice has been issued.

Since A/R is an asset, companies can leverage it to help finance their own operations. They may be able to borrow against their own A/R assets.

Accounts Receivable: Definition and Best Practices

Businesses who sell goods and services on credit have accounts receivable. This is the amount of outstanding invoices owed to the company. For the company, it is an asset, but still bears some risk. Not every customer will pay and some will pay late. Even those clients whose invoices are in good standing represent a period of time when a company has issued goods or services of value but have yet to receive payment.

Therefore it is essential to properly represent accounts receivable on your financial documents. Successful businesses also work to reduce the amount of outstanding A/R in order to improve cash flow. Techniques to do this help keep the business on solid financial footing while also remaining on good terms with clientele.

1. Understanding Accounts Receivable 

Accounts receivable is typically held by companies that invoice for goods or services to be paid at a later date. Cash businesses, or those who receive payment at the time of delivery of the good or service, won't have an accounts receivable. A consumer-facing retail shop that sells goods for immediate payment, for example, likely won't have A/R.

Businesses who deliver goods and then receive money are A/R businesses. The wholesaler who supplies the retail shop, for example, likely has A/R if it gives the shop a set number of days to pay. Most A/R invoices come with terms such as "Net 30," or "Net 15," indicating the period of time the customer has to settle the bill. If the bill is not settled, the customer may have to pay late fees or interest.

A/R is an asset, based on the fact that the customer is legally required to pay. If the customer does not pay in time, the company has the right to take steps to recover the debt. The initial stages may include additional charges. Collection activity may occur if the invoice is outstanding for an extended period of time. Since A/R is due within the current year, it is recorded as a current asset.

2. Reporting A/R 

A/R is an important asset. For some goods or services companies who regularly extend credit to customers, it may be one of their largest assets. It is recorded differently depending on the accounting method. Cash based accounting records the asset once payment comes in. Most companies, however, use accrual based accounting, where the sale is recorded as an asset as soon as the invoice has been issued.

Since A/R is an asset, companies can leverage it to help finance their own operations. They may be able to borrow against their own A/R assets.

Accounts Receivable: Definition and Best Practices

Businesses who sell goods and services on credit have accounts receivable. This is the amount of outstanding invoices owed to the company. For the company, it is an asset, but still bears some risk. Not every customer will pay and some will pay late. Even those clients whose invoices are in good standing represent a period of time when a company has issued goods or services of value but have yet to receive payment.

Therefore it is essential to properly represent accounts receivable on your financial documents. Successful businesses also work to reduce the amount of outstanding A/R in order to improve cash flow. Techniques to do this help keep the business on solid financial footing while also remaining on good terms with clientele.

1. Understanding Accounts Receivable 

Accounts receivable is typically held by companies that invoice for goods or services to be paid at a later date. Cash businesses, or those who receive payment at the time of delivery of the good or service, won't have an accounts receivable. A consumer-facing retail shop that sells goods for immediate payment, for example, likely won't have A/R.

Businesses who deliver goods and then receive money are A/R businesses. The wholesaler who supplies the retail shop, for example, likely has A/R if it gives the shop a set number of days to pay. Most A/R invoices come with terms such as "Net 30," or "Net 15," indicating the period of time the customer has to settle the bill. If the bill is not settled, the customer may have to pay late fees or interest.

A/R is an asset, based on the fact that the customer is legally required to pay. If the customer does not pay in time, the company has the right to take steps to recover the debt. The initial stages may include additional charges. Collection activity may occur if the invoice is outstanding for an extended period of time. Since A/R is due within the current year, it is recorded as a current asset.

2. Reporting A/R 

A/R is an important asset. For some goods or services companies who regularly extend credit to customers, it may be one of their largest assets. It is recorded differently depending on the accounting method. Cash based accounting records the asset once payment comes in. Most companies, however, use accrual based accounting, where the sale is recorded as an asset as soon as the invoice has been issued.

Since A/R is an asset, companies can leverage it to help finance their own operations. They may be able to borrow against their own A/R assets.

Rachelle CalinaComment