Financial Management Series: Accounts Receivable

Whether you're a big business, small business, or somewhere in between, you probably have some experience with a balance sheet. A balance sheet allows you to organize and plan your finances, which ultimately will protect your business and its assets. In short, it is a summary of the financial balances of your business, so knowing how to properly interact with each line item is essential to its accuracy.

"Balance is not something you find- it's something you create."

Jana Kingsfield 

As you move through the balance sheet, you may notice there are labels for assets and liabilities. It is then further broken down into sections under each label. Accounts receivable is one of these sections. Lamont Accounting Services is here to help you explore best practices, benefits, and importance of properly recording accounts receivable on your balance sheet. 

What is accounts receivable?

Accounts receivable, also known as "receivables" or AR, is the money owed to a company for its goods or services that has not yet been paid for by customers. AR can also be thought of as a purchase on credit. Accounts receivable is listed as an asset, not as a liability. This is because there is a legal obligation for the customer to pay that amount to the business. A credit approval process should be in place with set terms and conditions for your AR.  

What are the benefits of accounts receivable?

AR is extremely important for measuring a business' assets, especially in the short term. While the AR is being processed, a business is able to analyze their ability to cover short-term payments without cash flow. Accounts receivable also helps in the organization and planning on receiving payment after the credit process has been completed.

Tips for processing and reporting accounts receivable

1.Make sure that you have proper procedures in place for issuing credit with AR and collecting payment from your customers. Without this process, you will not be able to set terms for accounts receivable and collect timely payments.

2.Once the first step is completed, confirm you can have an invoice immediately ready for your customers. This is especially important for keeping proper and timely records. Accounting software can help ease this process.

3.Track your accounts receivable. Staying on top of due dates and being proactive can prevent your company from having to write off a bad debt expense.

4.Once the payment is made, confirm that the payment has been posted correctly

All in all, accounts receivable can help bring in new customers; offering credit as a way to pay will greatly increase the amount of people who can purchase your services or goods. However, it's necessary to stay on top of your AR in order to protect your business.
AR involves record keeping, proactivity, legal terms and conditions, among many other things. While the idea is simple, it can often feel overwhelming to do it all by yourself.

Luckily, if you need assistance, Lamont Accounting Services is happy to help. Click below to learn more about balance sheets and how we can streamline your processes to protect your business. 

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