What Is Accounts Receivable?
Accounts Receivable (AR) are the money owed by customers to a business. It is the sum of money due to a company by a client, and can be as short as a few days to several months or even a year. A company sells goods and services on credit. The sale is realised when the invoice is generated. Its underlying reason for extending a credit period is that it is more convenient for a customer than it is for a business to collect payment from a large group of customers.
Most businesses offer their services or products on credit. They send periodic invoices to special customers or frequent customers so they do not need to pay at each transaction. Other businesses offer credit after receiving a service. An electricity company provides electricity to a space and waits until the customer pays for it. Unpaid invoices are part of the accounts receivable account. A business should keep track of pending invoices and assets to ensure that they do not get caught in the process of collecting payment.
In most cases, companies give their customers the option of paying in installments. They may offer a discount if the customer buys in bulk. In this case, the customer should be allowed to pay later. If the buyer has paid in full, the money will be credited to the company’s credit card account. An unpaid invoice is part of the company’s accounts receivable. These payments will help the business plan.
Invoices are typically used to track accounts receivable. They detail the work performed and the payment terms and due date. By using invoices, companies can anticipate the influx of credit and identify late or non-paying customers. Unlike accounts payable, however, the amount of accounts receivable goes back to the sales total and cash flow. Thus, the money owed to the customer is an expense, not an asset.
When a customer has not paid for the goods or services, the business can write off the invoice. The company must take this amount off the accounts receivable to avoid losses. The company should not sell the product without first receiving payment. If the customer does not pay, the product is worthless and could lead to bankruptcy. So, it is important to communicate with your clients on a regular basis. If a customer does not pay, the sale is void.
Accounts receivable is the money owed by entities to a business. This type of debt is the amount of money owed by the customer to the business. The amount owed at the end of each month depends on the debtor. Generally, the net value of accounts receivable is reflected on the balance sheet by deducting the allowance account. The company is not liable for the payment of invoices.