Receivable

Process
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What is Accounts Receivable?
Accounts Receivable
represents money owed by entities to
the firm on the sale of products or
services on credit
typically executed by generating an
invoice and either mailing or
electronically delivering it to the
customer, who, in turn, must pay it
within an established timeframe, called
credit terms or payment terms.
Accounts Receivable
To record a sale that resulted in an
accounts receivable, you would need
to make a debit entry to the
accounts receivable account for the
sale amount and a credit entry to the
revenue account for the same
amount.
Accounts Receivable Process

The AR process is the process by which

businesses receive payments from
customers for goods or services sold.
Accounts Receivable Process

1. Establishing Credit Practices

2. Invoicing Customers
3. Tracking Payments Received and
Payments Due
4. Accounting for Accounts
Receivables
Accounts Receivable Process
Step 1: Establishing Credit
Practices
The company will then decide, based on the
credit-worthiness of the applicant, as to
whether they will offer goods on credit. The
company might choose to offer the credit
to individual customers or other
businesses.
Accounts Receivable Process
Credit Management
The management of credit can be
accomplished by reviewing customer
balances and running aging reports.
Accounts Receivable Process
Step 2: Invoicing Customers
The customer is then given the chance to
choose whether they want to receive
electronic or physical invoices. Large firms
prefer to send both the electronic and
paper invoices.
The longer a company takes to send an
invoice, the longer it takes for the
customer to make payments. The invoice
must be sent promptly.
 Accounts Receivable Process
Step 3:Tracking Payments Received
and Payments Due
This step is performed by an Accounts
Receivables (AR) Officer. The Officer keys out a
payment deposited into the bank account of the
supplier, feeds it into the AR system, and then
allocates it to an invoice.
The officer also reconciles the AR ledger to be
certain that all the payments are accounted for
and properly posted, and then issues monthly
statements to clients. The statement provides
details for the customers about the amounts
owed as per previously sent invoices.
 Accounts Receivable Process
Step 3: Step 3:Tracking Payments Received
and Payments Due
The tracking process differs in large and small
companies.
Smaller companies may not have an advanced
system in place to track payments, and may use
manual AR tracking by using tools, such as Excel. In
a manual process, companies use spreadsheets to
record when they send the invoices, and when
they receive payments. Small companies also may
not have enough staff to appoint an AR Officer, in
which the company may hire a professional
accountant to fulfill this function
 Accounts Receivable Process
Step 3: Step 3:Tracking Payments
Received and Payments Due
The tracking process differs in large and
small companies.
Larger companies typically invest in a
team of AR Officers to conduct the tracking
process, and they use some form of an
accounts tracking software system to help
ensure accuracy. The system helps the AR
Officer to be more effective, because it
automatically alerts the AR Officer to which
debt is outstanding.
 Accounts Receivable Process
Step 4: Accounting for Accounts
Receivable
The Collections Officer establishes the due
date for payments. After identification of
unpaid debts, the account department
makes journal entries to record the sales.
The process involves both accounting for
bad debt, or the unpaid debts, as well as
identifying early payment discounts.
 Accounts Receivable Process
Step 4: Accounting for Accounts Receivable
What Happens When a Company Cannot Collect Its
Accounts Receivable?
If a company cannot collect its accounts receivable, it
may decide to take the debtor to court over the
unpaid debt, or it may outsource the debt collection
activity to a third-party bill collector. These companies
typically charge a set fee or a percentage of the
amount they collect. In other cases, businesses sell
their accounts receivable for pennies on the dollar to
a factoring company that then collects the debt.
Factoring companies often offer some cash up front,
making them an attractive option for companies that
need a boost to their working capital
 Accounts Receivable Process
Step 4: Accounting for Accounts
Receivable
What Happens When a Company Cannot
Collect Its Accounts Receivable?
If a business has reported an account
receivable as income and it does not receive
payment, it has a bad debt. The Internal
Revenue Service (IRS) allows businesses to
subtract bad debts from their gross income
on their income tax returns, as long as they
reported the debt as income on a previous
return
Persons Involved in the Process

Accounts Receivable Clerk

Accounts Receivable Manager
Accounts Receivable Specialist
Accounts Receivable Management
1. Go electronic.
2. Reduce Payment Terms
3. Maintain a Healthy Work Relationship
4. Offer Multiple Payment Methods
5. Consider Hiring an Accounting Company
6. Set Clear Credit Policies
7. Make Collections a Last Resort
 Accounts Receivable Controls
Policy
Segregation of Duties
Require credit approval prior to shipment.
Proofread invoices
Authorize credit memos
Restrict access to the billing software
Review accounts receivable journal entries
Match billings to shipping log.
Collections
Cash flow is the lifeblood of every business
and slow paying customers can seriously affect
it. There are four Accounts Receivable
Procedures that every business should
implement to expedite collections of past due
accounts receivable. These are:
Ask for the money
Set up a process and follow it
Put delinquent accounts on credit hold
Use third party collectors sooner
Collections
Tips on how to improve
collections
QUIZ
1.Represents money owed by
entities to the firm on the sale
of products or services on
credit
2-5. Enumerate the accounts
receivable process