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The credit department is responsible for creating and sending invoices, receiving payments, and monitoring money owed. They maintain customer billing information and apply discounts. They work closely with the accounts payable department to ensure timely payments to suppliers.
One of the core principles of running a business is to have a means of keeping abreast of money owed by customers and to keep an accurate record of money received from customers which must be applied to the amounts they currently owe. Money owed is known as credit. Most companies have a department dedicated to this area and are responsible for creating and sending invoices, receiving and processing payments, and monitoring both money on hand and what is still owed.
The basic purpose of accounting is to ensure that any functioning entity has a concise picture of what is happening financially at any given time. A credit department contributes to accuracy in part by billing customers for services or goods returned. Typically, it is this department that keeps up with the customer’s billing information and custom billing needs.
For example, a large customer may receive a percentage discount on the monthly goods or services they purchase, based on the volume of business they conduct with the company. Accounting personnel should maintain this discount information as part of the customer’s billing profile, ensuring that all invoices to that customer reflect the appropriate discount. Often, this department has a great deal of input into what the invoice looks like, what information is included, and how it’s organized.
In addition to creating and distributing invoices to clients, this department is often responsible for receiving payments on those invoices and applying the money properly. While some departments tend to post a payment to a customer and apply it to the oldest outstanding invoice, it’s more common for a payment to be applied to a specific invoice, even if it’s not the oldest outstanding invoice for that customer. This allows staff members to identify aging older invoices and work with the customer to resolve any issues that may prevent payment of invoices older than standard payment terms.
Accounts receivable also works closely with the accounts payable arm of the accounting process. Just as customers are expected to pay for goods and services rendered, so the company should pay outstanding invoices to its suppliers in a timely manner. It is important that information on the amount of usable revenue is available before payments are made. With this data available, the Accounts Payable department is able to plan and make payments on behalf of the business.
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