Accounts Receivable is legally binding claims for unpaid payments held by an entity for products or services rendered which customers have purchased but yet not paid for. These typically are in the form of statements raised by an organization and delivered to the client for payment within a given period of time. These statements contain the date, invoice number, and method of payment, as well as an agreement to collect the funds. Accounts Receivable can arise due to a variety of reasons.
Major reasons that accounts receivables occur include late sales, failure to make a bill payment, failure to deliver merchandise on time, and non-payment by the client to the business. The nature of an account will also dictate when an account will be considered an outstanding receivable. For example, if an organization has a web site, it may collect user information, post marketing information, and update other content, and yet fail to make a bill payment to the client. This would then become an account receivables situation. Another example might be that the client fails to make a specified order within a specified time frame, the enterprise will obtain a judgment against the client for such failure, resulting in accounts receivables.
It is important to identify the sources of your accounts receivables, and to promptly act upon them if they become due. Generally, a business is responsible for collecting invoices once they become due, unless you can establish your customer has reached a voluntary exit from the industry (e.g., if they sell their businesses). However, sometimes you can still incur accounts receivables despite having a voluntary exit event, as you may still be charged for un-received invoices.
In almost all cases, the fastest way to collect an overdue invoice is to personally deliver it to the customer. Of course, this is the least desirable option, as you may find yourself on the receiving end of a lawsuit as a result of sending an invoice in the mail. In addition, if the customer does not have the funds in their accounts right now to pay the invoice, they most certainly will not have the funds available at a later date to settle the invoice. If an invoice is sent by telephone, most creditors are legally prohibited from harassing you by telephone, even though it is legal to do so under some circumstances (such as when you have received a complaint about harassing conduct by phone). In addition, many creditors make it illegal to send invoices by fax or email.
The next question that is important to answer when you are considering what is accounts receivable is what steps need to be taken to collect it. In the simplest case, you may collect the invoice if the client has adequate funds to pay the invoice. Again, this is where you may use the letterbox method or simply hand the letterbox to the client. However, in the event of an electronic transaction, your records will show the sale as being paid by credit/debit card and therefore you will need to collect the money either by cash or by order of a third party. Your records should also reflect that the sale was made to the credit card company and they will likely require you to provide them with proof of the sale.
At this point, you may be wondering why you are even considering what is accounts receivable. After all, if you were writing off invoices and never collecting them, you would quickly become a ghost town. You might only have one or two clients, and if you had any slow paying customers, you could be out of business in a very short time. However, if you look at your business in a more holistic manner, you will realize that it is vitally important to have a regular flow of sales and to regularly pay invoicing to your customers. This can mean contacting your clients to remind them about outstanding balances or other financial obligation and to make sure that they continue to pay on those obligations. When a customer knows their obligation is to you are actively collecting funds, they are much less likely to fall behind or become short-handed.
What is accounts receivable is certainly a large part of running and maintaining a successful small business? When you allow yourself to think creatively about how to collect money from your customers, you will find that you can significantly increase your revenue. In fact, when you allow yourself the time and the creativity to come up with new ways of doing things, your business will grow considerably. With what is accounts receivable, you will soon find that your profits will take off and your business will have the funds it needs to grow.
Of course, the reality is that the majority of small businesses are not in fact selling things like what is accounts receivable. The reason for this is that most small business owners don’t even really know what is accounts receivable. That is okay though because there are many other important and creative ways that you can use to increase your sales. One way that many business owners who are not selling items opt to do is to set up an exclusive store. This means that instead of going into a grocery store and purchasing items from all of the different vendors, you can purchase a specific amount from a single merchant. This allows you to control your costs and you still collect money from the customers that you bring into the store.