Important Steps in the Accounts Receivable Process

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Important Steps in the Accounts Receivable Process

CFO Tech Outlook | Monday, October 04, 2021

Accounts Receivable process entails keeping track of receivables to retain strong client relations while also keeping costs under control.

FREMONT CA: The Accounts Receivable Process entails collecting money, establishing policies and procedures, determining the credit period, keeping accurate records of every process, determining on receivables discounting and expanding the process, among other things, to manage the operating functions of an organization efficiently and effectively.

The company must provide various payment options to its clients, and for that, it provides credit to significant customers. Accounts receivables contain debtors, loan amounts, and so on. The administration of accounts receivables is constantly required. The accounts receivable process entails managing debtors, determining credit rules, selecting a payment method, establishing discounting policies, and defining the requirements for cash and trade discounts, and many other things.

Efficient accounts receivable management improves the organization's performance and adequately control the working capital cycle. It is the management or evaluation of whether it is better to get the payment after the due date or enable cash discounts and obtain payment immediately. The ability to effectively handle accounts receivables is dependent on the ability to effectively manage accounts receivables.

Steps of Accounts Receivable Process

Some of the crucial steps followed in the Accounts Receivable Process:

Determining the Average Receivables

To achieve efficient accounts receivable process, it is required to understand the receivable, that is, average receivables throughout the year, to identify the minimal lock-in amount and control the company's working capital and liquidity. The average receivables allow the company to maintain the liquidity ratio and plan future liquidity initiatives by finding the average receivables.

Invoicing Practices and Policy

The accounts receivable process comprises invoicing policies such as when to invoice the bill, such as after receiving the money or dispatching the goods, receiving cash in advance, or receiving confirmation of an order, and so on. To define the conditions of the agreement and maintain a transparent relationship with the consumers, the requirements of service and payment must be clearly stated on the invoice. The accounts receivable process entails monitoring and providing services to clients to preserve a long-term relationship with them.

Accounting of Receivables

Accounting for accounts receivables is essential for any business to keep track of records and store client information. Accounting entails entering invoices into the system, setting receipt due dates, ensuring receipt on time, adjusting entries, recording and accounting of bad debts, and many more.

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