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How Accounts Receivable Work?

Accounts Receivables

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Accounts Receivable

In this article, we explore how accounts receivable work, its process, and how to track it. You will also be able to understand the flow of tracking accounts receivable and why it is important to SMEs.

Let’s Begin.

Accounts receivable is a record of sales the business has made that have not yet been paid for by the customer. The record specifies the amount of the transaction and when the payment is due.

After issuing an invoice, the data needs to be recorded in your accounts receivable.

How Accounts Receivable Work (Process)? :

If you are using a manual system like Excel, or even pen and paper, then the accounts receivable should include:

  • Date of invoice
  • Invoice number
  • Customer name
  • The total amount of the invoice
  • Payment due date

The more information you have, the easier you can filter it.

If you are a growing business and want to save time recording these manually, you can consider using a cloud-based accounting system that automatically records your accounts receivable when you issue an invoice.

Tracking account receivables

Gathering your account receivables in one list will help you keep track of which customers have paid and not paid, and this data will help you create an invoice age analysis and a monthly statement.

A monthly statement gathers all the unpaid invoices of a customer, and the balances carried forward from the month before.

Accounts receivable is an asset on your balance sheet because it is money customer owes to you. Once the payment has been collected, the receivable is then converted to cash. Therefore, after receiving payment the invoice should be taken out of our account receivables ledger. Again, this will be automated if you are already using an accounting system.

What is the purpose of accounts receivable?

  1. You will be able to identify the amount that you should collect
  2. It shows the income of your business, hence ensures that your business cash flow is healthy
  3. It gives you a summary of who owes you money, making it easier for you to send reminders
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