The accounts receivable of an organization is responsible for collecting payments for services that the business provided to its clients.It is kept separate from the payable department in order to assess and control revenue.Due to its nature, only few employees are given access to it.

Most accounting systems have different ledgers that the business can use to understand its financial condition. The AR ledger can show statements for each client that the business serves and the employee can send out these statements to the customers asking for payment.The pro to sending statements is that it shows the entries made when the sale occurred as compared to an invoice that only shows less information.

An order by a client for a product or service results in an entry in the sales and cash receipt journal. This ledger has debit and credit columns so that when the customer places an order, the amount is put on the debit side which is the left side while a payment results in an entry on the credit side, the right side.

The balance sheet of a business shows the AR as an asset. This is because any outstanding balances that show on the accounts receivable should be paid within one year. So it is shown on the balance sheet as a current asset. A business should evaluate the clients who always pay promptly and then extend credit to them.

An investor can be given the AR aging report which shows amounts at different times of the year. A high AR balance is not always a good thing since it tells an investor that clients are not paying the business for services provided. In addition, a business that does not receive payments is prone to applying for loans which may become a burden to the company when it comes time to repay.

The Day Sales Outstanding is a tool that AR uses to have an idea on how long it will take to get checks for outstanding invoices from clients. The company takes the starting AR balance at the beginning of a period and the ending balance at the end of the period. It then sums these up and divides the result by the number of days in that period. A low number means payments will be received quickly while a high number indicates that the company has to increase its collection effort.

Most clients receive invoices from their vendors and they send checks with specific instructions as to which outstanding invoices they want cleared out. The business that receives the checks must apply payments to the specified invoices otherwise they run the risk of mixing up invoices and not getting paid. Since most products or services that a client orders have the same price tag, the business should apply payments based on the invoice numbers and not the balance amounts.

Accounts receivable has the most updated revenue balances in its account and therefore makes it easy for the company to pay off its debts because it cannot pay any bills if the AR ledger is minimal.

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Unique financing solutions including factoring and accounts receivable be customized to your business\’ needs. Contact Accutrac Capital Solutions today to get started! http://www.accutraccapital.com/

Author Bio: Unique financing solutions including factoring and accounts receivable be customized to your business\’ needs. Contact Accutrac Capital Solutions today to get started!

Category: Business Management
Keywords: Accounting, Adivce, Finance, Society, Money