The accounts receivable side of the accounting sheet is the side many businesses must allocate an entire department’s resources towards maintaining, monitoring, and collecting. Quite often, businesses have failed not because they weren’t profitable, but because they weren’t collecting on sales and their cash flows were inadequate. That’s an awfully hard place to be, to realize your product is good, it has just been through poor management that the business failed.
What exactly are accounts receivables?
The answers here are not as complicated as you might at first believe. Your accounts receivables are your customer’s that owe you for the purchase of your merchandise or services. Whenever you sell a product or service, if you don’t immediately collect for the product or service, you have acquired an “accounts receivable”.
What can you do to monitor and collect on your accounts receivable?
How do you monitor your accounts receivables, and then collect in a timely fashion? The key here lies in diligence, implemented procedure, and the determination to follow up on delinquent or bad accounts. The accounts receivables of a company are sometimes examined in order to determine if the company is in financial trouble, or simply suffering from an inadequate cash flow due to a lack of receivables collections.
Often, when a company extends credit to its customers, a credit application is required. In fact, this should be as concrete as requiring a phone number, but it is sometimes overlooked. In requesting a credit application, you are given the opportunity to check with other business associates for that customer, to determine what their pay history has been previously. If they are slow or no pay customers, you would not want to extend further credit.
The next step in the accounts receivables of a business is to keep accurate contact information, procedure and policy for that company when it comes to issuing and paying purchase orders, and accurate shipping and invoicing records of your product shipments. If the customer has been given 30 day terms, they won’t owe you for an invoice, until it reaches 30 days old.
Thanks now to the extensive use of computers, aging accounts receivables reports are available with the click of a button. Standard reports can be generated that will detail customer information, ship dates, invoice dates, and payment due dates. Outstanding or aging accounts are readily noted and can be contacted for immediate payment arrangements.
Should the customer fail to pay, altogether, there are legal options, if you have maintained accurate records, followed your customer’s instructions, and kept copies of purchase orders, written requests, or made sufficient notations for telephone orders. Quite often, when a product is shipped to a customer, the shipment will require a customer signature prior to being released. All of your more common and reputable shipping companies will automatically provide the shipper with signed documentation of delivery.
As you can see, the choice to extend credit to a customer can become a good show of faith, or it can result in a tremendously big mess. The key to the successful operation of accounts receivables is through the collection of proper identification and credit verification on your part, and through maintenance of accurate information and records, also your responsibility.