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What’s the role of accounts receivable?

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Accounts receivable is when a business gives short-term loans to customers who buy goods or services on credit. The department keeps records of who owes money, reconciles customer accounts, and creates aging reports to determine late payments. The department also performs minor credit checks, but the final decision is made by the controller. Daily work is repetitive, and the department is responsible for completing monthly activities such as reconciling accounts receivable and creating aging reports.

Accounts receivable is a concept in which a business provides short-term loans to its customers. For example, a business sells goods or services on credit, forcing the accounts receivable department to keep records of who owes the business money and when customers are due to pay invoices. Other tasks may also exist in this department, such as reconciling customer accounts, balancing accounts receivable from parent accounts, and creating aging reports to determine which customers are seriously behind in making payments on open accounts. Smaller companies may not have a real accounts receivable department; instead, a single individual handles these tasks. This department is one of the most important in accounting offices, since it partly controls the cash flow of a company.

Offering short-term credit accounts to customers is one way a business can induce more sales to those who don’t have cash on hand. A business may use its accounts receivable department to perform minor credit checks on customers seeking business accounts. This may involve checking records with other providers who have offered business credit accounts to potential customers. This historical record can indicate how well the potential customer will pay their bills. The accounts receivable department cannot make the final decision on credit accounts, leaving this responsibility to the controller.

Daily work in an accounts receivable department is often repetitive, as are many different activities in an accounting department. Accountants sort the mail each day and look for customer payments. If any exist, accountants date-stamp the payment received and open the client’s account in the company’s ledger. A brief reconciliation may be necessary to determine which open invoices the check covers in terms of payment. If the client is paying a statement sent by the company, this reconciliation process may be easier since some of the work is already complete.

Once accountants receive cash from customers, reconcile accounts receivable, and record payments, further reconciliation may be necessary. This can start with creating an aging report to determine which customers still owe money and the age of open accounts. Notices can be sent to extremely late customers, requesting payment immediately to close open accounts receivable. The accounts receivable department is generally responsible for completing this activity on a monthly basis. Reconciling the accounts receivable from parent accounts to the aging report can also be a monthly project.

Smart Asset.

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