|
Accounts Receivable Turnover Ratio
Tips for Collecting on Accounts Receivable
Here we have listed some of the tips which companies can employ for accounts receivable collection:
Ask customers to pay a late fee for overdue payments
Reward customers who pay quickly by offering some discounts
Send automated system alerts for overdue invoices
Set up an efficient follow-up process for pending payments
Hire a collectionsagency
Keep track of all invoices with an accounting software
What Is the Function of the Accounts Receivable Department?
The main function of the accounts receivable department is to track all the receivables and follow up for pending payments from customers. AR department is responsible for generating the invoices, sending it to the customers, follow up for the pending payments, and recording payments. They are also responsible for maintaining goods terms with the customers by sending them friendly payment reminders.
2. Accounts payable
Accounts payable is money owed by a business to its suppliers shown as a liability on a company's balance sheet. It is distinct from notes payable liabilities, which are debts created by formal legal instrument documents.3 An accounts payable department's main responsibility is to process and review transactions between the company and its suppliers and to make sure that all outstanding invoices from their suppliers are approved, processed, and paid. Processing an invoice includes recording important data from the invoice and inputting it into the company's financial, or bookkeeping, system. After this is accomplished, the invoices must go through the company's respective business process in order to be paid.4
An accounts payable is recorded in the account payable sub-ledger at the time an invoice is vouched for payment. Vouchered, or vouched, means that an invoice is approved for payment and has been recorded in the General Ledger or account payable sub ledger as an outstanding, or open, liability because it has not been paid. Payables are often categorized as Trade Payables, payables for the purchase of physical goods that are recorded in Inventory, and Expense Payables, payables for the purchase of goods or services that are expensed. Common examples of Expense Payables are advertising, travel, entertainment, office supplies and utilities. accounts payable is a form of credit that suppliers offer to their customers by allowing them to pay for a product or service after it has already been received. Suppliers offer various payment terms for an invoice. Payment terms may include the offer of a cash discount for paying an invoice within a defined number of days. For example, 2%, Net 30 terms mean that the payer will deduct 2% from the invoice if payment is made within 30 days. If the payment is made on Day 31 then the full amount is paid. This is also referred to as 2/10 Net 30.5
In households, accounts payable are ordinarily bills from the electric company, telephone company, cable television or satellite dish service, newspapersubscription, and other such regular services. Householders usually track and pay on a monthly basis by hand using cheques, credit cards or internet banking. In a business, there is usually a much broader range of services in the accounts payable file, and accountants or bookkeepers usually use accounting software to track the flow of money into this liability account when they receive invoices and out of it when they make payments. Increasingly, large firms are using specialized Accounts Payable automation solutions (commonly called Payables) to automate the paper and manual elements of processing an organization's invoices.
Commonly, a supplier will ship a product, issue an invoice, and collect payment later. This is a cash conversion cycle, or a period of time during which the supplier has already paid for raw materials but hasn't been paid in return by the final customer.
When the invoice is received by the purchaser, it is matched to the packing slip and purchase order, and if all is in order, the invoice is paid. This is referred to as the three-way match.6 The three-way match can slow down the payment process, so the method may be modified. For example, three-way matching may be limited solely to large-value invoices, or the matching is automatically approved if the received quantity is within a certain percentage of the amount authorized in the purchase order.7 Invoice processing automation software handles the matching process differently depending upon the business rules put in place during the creation of the workflow process. The simplest case is the two way matching between the invoice itself and the purchase order.
Estimates from 2009 suggested that more than a billion business-to-business invoices were being processed each week, and 97% of these were still processed manually. The average cost to process and pay a supplier invoice was between $5 and $15, with 10% processed too late to be paid within discounting terms, and nearly 2% containing errors.8
Recording Accounts Payable9
Proper double-entry bookkeeping requires that there must always be an offsetting debit and credit for all entries made into the general ledger. To record accounts payable, the accountant credits accounts payable when the bill or invoice is received. The debit offset for this entry generally goes to an expense account for the good or service that was purchased on credit. The debit could also be to an asset account if the item purchased was a capitalizable asset. When the bill is paid, the accountant debits accounts payable to decrease the liability balance. The offsetting credit is made to the cash account, which also decreases the cash balance.
For example, imagine a business gets a $500 invoice for office supplies. When the AP department receives the invoice, it records a $500 credit in accounts payable and a $500 debit to office supply expense. The $500 debit to office supply expense flows through to the income statement at this point, so the company has recorded the purchase transaction even though cash has not been paid out. This is in line with accrual accounting, where expenses are recognized when incurred rather than when cash changes hands. The company then pays the bill, and the accountant enters a $500 credit to the cash account and a debit for $500 to accounts payable.
A company may have many open payments due to vendors at any one time. All outstanding payments due to vendors are recorded in accounts payable. As a result, if anyone looks at the balance in accounts payable, they will see the total amount the business owes all of its vendors and short-term lenders. This total amount appears on the balance sheet. For example, if the business above also received an invoice for lawn care services in the amount of $50, the total of both entries in accounts payable would equal $550 prior to the company paying off those debts.
Do'stlaringiz bilan baham: |
