Managing accounts receivable is a key challenge for businesses. When customers purchase on credit, companies face the risk of late payments and potential cash flow gaps. Without proper tracking, it’s easy to lose sight of outstanding balances and miss overdue accounts

A clear account receivable process helps you collect payments on time, reduce credit risk, and maintain accurate financial reporting. It also protects liquidity and supports better decision-making.

What is Accounts Receivable (AR)?

Account Receivable (AR) refers to the amount of money a company is entitled to receive from customers for goods or services on credit. These customers can be individual consumers or business clients. Once the product is delivered or the service is completed, the company issues an invoice with agreed payment terms. Until the payment is received, the outstanding amount is recorded as accounts receivable.

Is Accounts Receivable Considered an Asset?

In financial reporting, accounts receivable are recorded on the balance sheet as a current asset. Managing receivables is essential for accurate financial tracking, as it helps businesses monitor cash flow, manage credit risk by identifying overdue payments early.

Characteristics of Account Receivable

1. Amount Due
   The amount due represents the total value of a transaction, including any applicable interest. Interest arises when a credit transaction reaches or surpasses its due date within a specified period.
2. Due Date
   The due date is the agreed payment deadline between the seller and the customer. It defines the specific time when payment becomes legally collectable. Once the due date is reached, the company has the right to initiate collection according to the agreed terms.
3. Invoice Aging
   Aging invoices classify receivables by how long they have been unpaid. It can be tracked in two ways:
   • Daily, measured in days, provides a precise view of overdue amounts.
   • Monthly, typically set on the same day as the original transaction, offering a consistent monthly tracking method.

Types of Receivable

Accounts receivable can be divided into three main types, they are:

1. Accounts Receivable
   Arise from credit sales, when goods or services are sold, and payment is due after a short period. Typically, the payment period ranges from 1 to 2 months.
2. Notes Receivable
   These are formal, written promises to pay, usually in the form of a physical note. The payment term typically ranges from two to three months, and if paid within the agreed period, no interest is charged.
3. Other Receivables
   This category includes employee loans, interest, salary, and tax refunds. These items are often reported separately on the balance sheet to provide a clearer picture of the company’s financial position.

The AR Process

1. Order Receive & Approvals
   The process begins when a new or existing customer places an order and requests payment on credit. An approval step is needed to evaluate the customer’s credit risk. If the credit check is successful, contract negotiations can proceed.
2. Invoicing
   An invoice is created to match the customer’s purchase order for goods or services and is sent promptly. Accurate invoices with clear payment terms and due dates help minimize delays and disputes.
3. Tracking & Monitoring
   Ongoing management of balances and payment statuses is critical. Companies track which accounts are approaching or past their due dates to ensure timely collections.
4. Collection
   Overdue accounts are followed up on, and any disputes are resolved. Modern AR software often streamlines this step, improving efficiency and accountability.
5. Reconciliation & Reporting
   Accounts are reconciled to ensure accuracy, and credit policies are reviewed. The process concludes when the customer completes the payment, officially settling the account.

Difference Between Accounts Payable vs Receivable

While both Accounts Payable (AP) and Accounts Receivable (AR) are crucial components of a company’s financial management, they represent opposite sides of the cash flow. Below is the key difference between AR and AP:

1. Accounts Receivable (AR)
   Accounts Receivable occurs when a company is owed money by its customers for products or services delivered on credit. It reflects future cash inflows and is recorded as a current asset on the balance sheet. Proper management of AR ensures timely collections and supports healthy cash flow.
2. Accounts Payable (AP)
   Accounts Payable, on the other hand, occurs when a company owes money to suppliers or vendors for goods or services purchased on credit. AP represents future cash outflows and is recorded as a liability on the balance sheet.

Manage Your Accounts Receivable with BOSNET Distribution Management System (DMS)

Take full control of your accounts receivable with BOSNET Distribution Management System, an automated solution that tracks every transaction detail and provides clear monitoring throughout the payment process.

Our solutions provide real-time information on invoices, due dates, and cash flow. BOSNET DMS helps businesses manage collections and streamline financial operations.

Contact us to learn how BOSNET can help manage AR and maintain a healthy cash flow.

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