Accounts receivable is a business term that refers to the debts and funds owed a company for products or services that have been provided to them. It is shown on an accounting form as a form of assets and can even be bought and sold depending on the type of money owed and the contract that covers the transaction that lead to the account receivable.
How to Implement Account Receivables for Your Business
1. Evaluate your companies need for account receivables
The first step in using an accounts receivable is to determine the size of your company and how technical you need your accounts receivable to be. For a small business that has a single source of profit generation, accounts receivable will be a very simple concept that can be covered by the business owner if he or she is able to keep a simple account book. Companies with many sources of income may need to hire an employee who handles only accounts receivable and billing issues. This can be very helpful, as it allows the business owner to spend time on running the business, however the costs must always be considered.
2. The Importance of a Sales Ledger
After your evaluation, you will need to keep track of your financial information by using a sales ledger. A sales ledger will document the sales a business has made, the amount of money for those sales, and each monthly total. The sales ledger is the key piece of accounting needed in order to track all sales and income generation your company is creating.
3. Generating Billing Documents and Proper Billing for your Services or Products
The next step is to have the ability to generate billing documents and send them to those who owe during accounts receivable. Billing information can be found throughout the internet or by consulting a business accountant or billing professional. Once established, you must have the ability to send your billing statements to the places of business that owe you funds.
4. The Accounting Process
Finally, the accounts receivable must go through an accounting over a specific time period, with the maximum time being one year, as your business will need to file tax information for the business year with the IRS. Some small business owners may be able to do this on their own if they have experience in accounting, however most will have to have this accounting done by an accounting service provider. This should be a cost all businesses are prepared for, as taxation will be required for every business year. Of course, the costs of accounting work will be highly dependent on how many different types of taxes your business are subject to and how well your accounts receivable have been documented.
Hidden Costs of an Accounts Receivable
One unfortunate part of business is acknowledging the fact that not every debtor will pay for the goods and services they receive. While this will initiate lawsuits and other legal filings, accountants must take this into account when developing an accounts receivable plan for their business. Of course, good businesses will try to avoid unpaid balances whenever possible, by not doing business with such entities on the brink of insolvency or bankruptcy, but sometimes a company has no choice but to work with them.
Am accounts receivable may lead to certain legal issues that need to be turned over to competent transactional lawyers or lawyers with business experience. When a debtor to an account receivable fails to meet the repayment term, legal action may be necessary in order to collect the funds. This can become especially troublesome when the debtor is in a state of bankruptcy or insolvency, as the company that is owed the money may need to enter legal claims as a creditor of the troubled company. Companies should factor in the legal costs and time it may take in order to recover from accounts receivable that are not repaid.