What are accounts receivable?
Accounts receivable, also known as trade debtors, are the amounts owed to a company by its clients.
An account receivable comes about when goods or services are sold to clients on the basis of credit. Under the credit system, a client is given a certain time frame in which the account has to be paid.
Accounts receivable represent a current asset in the balance sheet, as they signify the future right to receive cash, and are a central asset to any business.
If the receipt of accounts receivable are not handled efficiently and accurately, problems such as profit declines and cash flow shortages can arise.
How can you take control of your accounts receivable?
Some controls which you may put in place over accounts receivable include:
- Establish collection and credit policies in writing.
- Complete credit checks on all new prospective clients applying for credit.
- Frequently age your accounts, and get an independent examination of the report.
- Go over the credit transactions and write-off bad debts.
- Put in a place a thorough policy for the following-up of accounts that are overdue.
- Settle trial balances with general ledger accounts.
As a business owner, you should remind yourself that accounts receivable collections are just as important as gross revenues.
Are you after more information on accounts receivable?
Our business accountants at The Quinn Group can assist with any bookkeeping issue you may have including accounts receivable. Call us today on 02 9223 9166 or submit your enquiry here.
