If you’re in business, then you likely have accounts receivable. But what exactly are accounts receivable? In short, it’s the money that customers owe your business for goods or services that have been provided. It’s considered an asset on a company’s balance sheet because it represents money that will be received in the future. Please keep reading to learn more about this bookkeeping service and how they impact your business.
Most businesses allow their customers to pay for goods or services over time, which means that these receivables can build up over time. This can be a good thing, as it can provide a source of working capital for the company. However, if accounts receivable become too high, it can strain the company’s cash flow.
Companies will typically set up an Accounts Receivable ledger to keep track of accounts receivable. This is a record of all the money that is owed to the company by its customers. The ledger will show the customer’s name, the amount owed, and when the payment is due.
If a customer does not pay their accounts receivable, the company can take steps to collect the debt. This might involve hiring a collection agency, taking the customer to court, or seizing assets.
Accounts receivable are an integral part of many businesses and keeping on top of it is essential. By doing so, companies can ensure they have the cash flow they need to keep operating.
You can do a few key things to manage accounts receivable and keep it from becoming a problem for your business.
- Establish clear payment terms with your customers. Make sure they know when payments are due and the consequences of late payments. This will help to avoid any confusion down the road.
- Stay on top of invoicing. Send invoices as soon as goods or services are provided and follow up on any that are outstanding. The sooner you can get money coming in, the better.
- Consider using a collection agency to help you recover any unpaid debts. This can be a time-consuming and expensive process, but it may be worth it to get the money that you’re owed.
There are a few common problems that can arise with accounts receivable.
- If invoices are not sent out promptly, collecting payment cannot be easy. This can lead to delays in getting the money that you’re owed.
- If payments are not collected on time, it can put a strain on your company’s cash flow. This can make it difficult to pay your bills and meet other financial obligations.
- If accounts receivable become too high, it can be a sign that your business is growing too quickly. This can be difficult to sustain in the long run and can lead to financial problems down the road.
At Consult Your CFO, the CFOs are responsible for the financial health of the client’s company, including managing accounts receivable. The CFO works with the accounting department to ensure that invoices are sent out on time and that payments are collected efficiently. CFOs also develop strategies for managing accounts receivable, such as offering discounts for early payment or using third-party collection agencies.
Accounts receivable can represent a significant portion of a company’s assets, so CFOs need to know how to manage this business area. They need to be able to assess risk and make decisions that will protect the company’s financial interests. CFOs also need to effectively communicate with the accounting department and other stakeholders about the accounts receivable status and any policy or procedure changes.
If this sounds like a service you need help with for your company, call Consult Your CFO today at 410-371-0821 to get started!