Ministry of Higher and Secondary Special Education of the Republic of Uzbekistan Tashkent State University of Economics

Step 3 Payment Collection

Once your customer has received the invoice, they need to make payment. All customers need to make payment before the invoice due date. Once you have received the payment, you need to give them a payment receipt and also record the payment entry in the system. While recording the payment journal entry, you need to debit the cash to show an increase due to the payment and credit accounts receivable to reduce the amount owed by your customer.

What Happens If Accounts Receivable Is Not Paid Ever?

When your customers are unable to pay an accounts receivable due to bankruptcy or any other reason, you need to write it off as a bad debt expense. Also, if your collection agency is charging higher fees than the total debt amount, you should write off the amount as a bad debt expense. Bad depth happens in cases when the customer is unable to pay due to the lack of available finances, or the customer is going bankrupt.

What Is the Accounts Receivable Turnover Ratio?

The accounts receivable turnover ratio helps you find out how fast your customers are paying their bills. The AR turnover ratio is used to identify a company’s efficiency in collecting its pending receivables owed by customers. The average accounts receivable ratio is calculated by dividing net sales by average accounts receivable.
Accounts Receivable Turnover Ratio Formulae-
AR Turnover Ratio= Net Credit Sales/ Average Accounts Receivable
Example of Accounts Receivables Turnover Ratio Calculation-
For example- Net credit sales for ABC company is $150,000 for this year. At the start of the financial year, $20,000 is AR balance, and $ 10,000 is accounts receivable balance at the end of this year. Here average accounts receivable will be ($20,000+$10,000)/2 which is $15,000. To calculate the accounts receivable turnover ratio, you need to divide $150,000 by $15,000, which is 10.
Net sales- $150,000
AR balance for the previous year- $20,000
AR balance for this year- $10,000
Average Accounts Receivable = ($20,000+$10,000)/2= $15,000
Accounts Receivable Turnover Ratio(ARTR)- $150,000/$15,000= 10