Finance

Everything You Need To Know About Account Receivables

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Account Receivables

Account receivables are sales a company makes but is yet to receive payment for them. Many companies, big and small, are quickly adopting account receivables, and for a good reason.

In this article, we are going to learn everything there is to know about accounts receivable.

Importance of Account Receivables

Account receivables do offer a series of benefits to a business. However, this is only applicable if account receivables are well maintained.

Below are some of the advantages of account receivables.

Builds customer loyalty

The fact that you offer customers a chance to purchase your goods on credit or over a more extended payment plan is enough to keep them coming back. Customers appreciate the fact that you trust them and reciprocate the act through loyalty to your brand.

 

  • Triggers more sales

Again, selling goods on credit or overextended payment plans triggers an increase in sales. Since there is an option to make partial or later payments, most customers will take advantage of the offer and purchase more than they would in an only cash transaction.


  • Allows companies to track customer sales history

Well-managed account receivable files will give a company a more detailed understanding of their customers’ purchasing habits. By taking a moment to peruse through these customers’ history, a company instantly knows which customer pays on time, separating them from those with a low credit score.

As such, a company can make well-thought and individualized decisions on which customer deserves an extension of their payment duration and which one the company needs to be more careful with.

Steps to proper account receivable management

Proper management of a company’s account receivable is of utmost importance.

So, how do you go about it?


  • Conduct a credit check

The importance of conducting a credit check on your customers before allowing them to enjoy the luxury of account receivables cannot be over-emphasized. In as much as you are trusting customers to pay you after a certain period, you need to be sure that you will be paid.


  • Grant credit

After you have conducted a credit check and come up with a list of qualified candidates, you can now grant them credit.

However, you need to have specific and unique requirements for each one of them. Clearly state the conditions of the sale before issuing the goods.


  • Debt collection

To ensure continuity of business processes, you need to have a system that accurately tracks debt collection. You can have a rigorous plan that sends reminders to clients a few days before their deadlines.

What you want to do is reduce the number of outstanding debts. Outstanding debts are a business’s worst enemy as they showdown business operations; with too many customers delaying their payments, the company’s likely to see a reduction in profit margins, a lagging in business operations, and an increase in the cost of financing.

Conclusion 

In business, account receivables are almost inevitable. However, they can elevate or lead to the downfall of the company. To avoid the latter, make sure you practice proper account receivables management.

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