Effective Way To Manage Your Account Receivables

Online, December 11, 2013 (Newswire.com) - Accounts receivable is one of the most important liquid assets reflected on the books of most firms A properly managed accounts receivable portfolio will expedite income and support the company's money needs.The objective of accounts receivable is to extend the working capital.Today, the overall health of a company is mainly depends on its accounts receivables.Consequently, many successful firms are finding out innovative ways to improve their accounts receivable function.

In earlier days, a company's business transactions did not reflect any accounts receivable component. The merchandises or products were directly exchanged between the seller and the buyer on the spot and hence there was no need for any credit checks. But things have changed a lot now. The evolution of credit represents one of the most seminal changes. Not only has credit spawned the accounts receivable function, it has also left an indelible imprint on modern business.

Accounts Payable Vs Accounts Receivable

Money owed by a company due to purchase of goods or services on credit from a supplier is termed as Accounts Payable. On the other hand, payments that need to be by the company from its customers on account of sale of goods or services on credit is termed as Accounts Receivable. In short, Accounts Payable are said to be Liabilities and Accounts Receivable are Assets of a company.

Best Practices

As firms that apply best practices seek to wring the foremost potency from their accounts receivable process, they perpetually evaluate their systems and procedures from all directions. Not only do they deal with high-tech innovations, they additionally scrutinize the business decisions that form the foundation of each process.
Companies handling commercial accounts generally have fewer customers with larger invoice amounts, whereas firms dealing with consumer accounts interact with an increased volume of customers and smaller invoice amounts. The fundamental processes within the accounts receivable function, however stays similar.

Basic Processes

The three basic processes that compose the accounts receivable function are:

1.Remittance process which includes payment ways and automatic process.

2.Credit management which includes credit checks and approvals, communication of credit policies, and credit maintenance.

3.Collections which includes ways to observe and encourage internal and external collections managers.

Customer Service

Customer service plays a major role in the above processes. In fact, timely assortment of receivables depends a great deal on client satisfaction that primarily represents a gauge of the importance an organization places on client service. To that end, best practices firms incorporate a customer-focused approach into each of the three basic accounts receivable processes.

No company can compel its customers to pay their bills. However, they can instead find out other ways to ensure payment from its customers. Successful firms leverage income with effective receivables management. They acknowledge that fewer outstanding account balances mean fewer bad-debt write-offs -- and increased profit. A discussion of the most effective practices utilized by leading firms to effectively manage their receivables accounts receivable is still going on.