You need to set up procedures for accounts receivable if you extend credit to your customers. Account receivable arises when you allow customer to take immediate possession of a product or receive service in return for a promise to pay in future. In other words, this means you allow them to take possession of your products before they pay you.
If your business accepts credit cards, credit card company manages risk. But if customers are going to pay with cash or cheques, you must manage verification of payments and risk. X Trustworthy Source US Small Business Administration, US government agency, focuses on supporting small businesses. The Go to Source accounts receivable services includes setting up procedures for extending credit, generating invoices, maintaining records of payments due and payments receive, and performing accounting functions.
Its vital that you stay on top of your Accounts Receivable balances. This way, you can make sure that customers are reminded when payment due dates draw closer as well as follow up when payments are late.
If you are using Accounting software, you can run a weekly Accounts Receivable report to see which accounts are past due and which will soon be due. This can help you collect past due accounts. Proper Management of your Accounts Receivable balances is important.
If you re new business owner, or have recently switched accounting methods from cash to accrual accounting, you may not be familiar with accounts receivable. Accounts receivable plays an active role in the accounting cycle.
Accounts receivable totals directly affect your net income since they are considered revenue, but subsequent collection of any receivables balances do not affect your retained earnings, since they are already part of your revenue total. In addition, accounts receivable is permanent account and is not affected by closing entries. Sending an invoice to your customers promptly helps to ensure that payment will be made promptly.
Send invoice immediately: Dont wait week before sending invoice. Once the purchase is complete, invoice should be completed as well.
Use accounting software If you can: One of the nice things about using accounting software is that once a sale is process, you can immediately invoice your customers.
Be sure terms are front and center on your invoice: If you expect payment in 30 days, be sure that note is prominently on the invoice. Remember, your customers ca pay you on time if they do know when payment is due. Note that sales tax is not included in this journal entry, because sales tax remittance is handled in a separate transaction. The easiest way to post customer payments is by accepting payments online. However, many people still have their customers remit payments through mail.
Quickest way to receive payment is to provide your customers with numerous payment options. While online payments offer greater convenience, some businesses still prefer to pay bills by check. Make sure your customers have the option to do both.
If your accounting software automatically posts payments from your bank, be sure that payment is posted properly. In most cases, automatic posting is complete without issue, but there are times when payments are put in limbo or even posted to the wrong account.
Contact us here for the help in improve your business accounts receivable process and receivable query.