A concern and an annoying yet common element in business accounting. This is what accounts receivable entail.They have been so since the beginning of commercial activities and have not changed with the advent of this new digital era. Therefore, they continue to have an impact on automated accounting and invoice approval.That is why, in this text, we want to explain in detail what accounts receivable are at an accounting level, how they are classified and recorded today, and their risks. And, of course, how easyap can help manage them.
What is an account receivable?
The first step is to establish what an account receivable is conceptually. Any ordinary person would understand an account receivable as any invoice or payment that has not been settled. However, we are talking about a more profound term, given its significance in companies.
By technical definition, at easyap, we say that an account receivable is an accounting term referring to the amounts a company expects to receive from its customers for goods or services it has provided on credit.Likewise, it is a right the company has over the customer to receive a payment in the future.
Accounts receivable appear when a company offers credit terms to its customers so they can pay their invoices within a specified period. For example, if a company sells products with a 30-day payment due date, an account receivable will be generated at the time of sale and until the customer makes the payment. That is, accounts receivable are those that do not require or entail immediate payment.
What is A/R?
At the same time that we define this concept, other related ones emerge. For instance, one of the most popular is A/R. One only needs to search on the Internet or be familiar with accounting and finance to confirm that it is very common.
In this sense, A/R is the abbreviation commonly used to refer to accounts receivable by using the initial letters of the term and creating an acronym from them. In other words, “Accounts Receivable”.
How are they classified in accounting?
As we have already mentioned, the importance of accounts receivable is fundamental in accounting, as they have a significant impact on a business’s liquidity and solvency.Without them, it’s impossible to carry out medium and long-term financial planning, as they determine your liabilities, assets, and capital based on specific timeframes.
Likewise, they are classified into two main categories: trade accounts receivable and non-trade accounts receivable.
Trade Accounts Receivable
These are las that arise from the sale of products or services to customers.They are a current asset and are expected to be paid within a short period. Within this category, you can include issued invoices, advance payments already received, or trade discounts, among others.
When discussing trade accounts receivable, you can also classify them into different categories based on their age. In other words, the time that has passed since we issued the invoice or credit:
– Current, which are those you expect to be paid within 30 to 60 days.
– Overdue, which are those that have passed their due date and have not been paid.
– Doubtful, which are invoices where you have uncertainty or doubt regarding payment from the customer.
– Uncollectible, which are considered irrecoverable and that you do not expect to be paid.
Non-Trade Accounts Receivable
In turn, non-trade accounts receivable are those that are not related to the sale of goods or services.Therefore, among them you can include loans made to employees, credits granted to third parties, taxes to be recovered, deposits that still need to be returned, and so on.
How should accounts receivable be recorded?
Once the concept has been explained, and if you are not particularly proficient in the field of accounting, you might ask yourself the following question: How should they be recorded in a balance sheet? From our experience in the accounting and financial world, we recommend the following for recording your accounts receivable:
– Create an accounting account. You will need to record it on the general balance sheet as a current asset.
– Record the invoice. When you issue invoices to your customers, you must record the corresponding amount as an accounts receivable in your ledger. To do this, you need to debit the accounts receivable account and credit the sales account.
– Record received payments. When you receive a payment from a customer, you must record it in the transactions section of your ledger.
It may seem like a simple process. However, for large companies with a high volume of invoices and that manage billing processes with many documents, it becomes a truly complex procedure. This is where invoicing software can help you, although we will detail how later.
Risks of having accounts receivable and how to reduce them
First, what we do want to emphasize is that accounts receivable for businesses carry certain risks. Especially at an accounting level. The most known and common ones are those we list below:
– Non-payments. One of the biggest risks when keeping accounts receivable records is seeing that some customers do not pay. This can affect your company’s ability to cover its expenses and financial commitments with other entities or banks..
– Collection costs increase.Managing accounts receivable can be costly, as it requires resources. We’re talking about personnel, equipment, and other administrative expenses.
– Time loss. It’s a process that can take a lot of time and distract your company from other important tasks.
Based on our experience, we recommend following some of these practices to reduce these risks:
– Before granting credit to a customer, it’s important to verify their credit history and ability to pay. If they appear in delinquency files, if they have many outstanding credits, their solvency…
– Ensure timely invoicing with an organized planning. This way, you will avoid errors and delays that could postpone payment.
– Offer payment incentives. For example, the technique of offering discounts for early payment or cash payments can motivate your customers to pay faster.
– Establish credit limits. Setting credit limits for each customer can also help you reduce the risk of non-payment.
And, above all, we recommend using the best technology to maintain good accounts receivable control. For this, technology offers very interesting and practical solutions.
How does easyap’s service help with accounts receivable?
Precisely, it is at this point where software like easyap’s comes into play. It can be the accounting ally you’re looking for. With it, you will face accounts receivable management and delinquency by taking advantage of several benefits, as:
– Facilitates the tracking and recording of issued invoices. Electronic invoicing software allows you to keep a detailed and updated record of the invoices you have issued to all your customers. Therefore, you will be able to track accounts receivable much more efficiently.
– Improves the accuracy and speed of invoice sending.With a solution like the one we developed at easyap, we guarantee that invoices will be sent accurately and quickly to your clients. This way, you accelerate the payment process and reduce the possibility of delays or errors in your invoicing process.
– Automate all accounting and the payment reminder process. With e-invoicing software, you can also send automatic payment reminders to your clients. This way, you can help yourself and your company reduce the number of outstanding invoices.
– Provides accounts receivable tracking reports. A quality digital e-invoicing tool like ours is also capable of generating detailed reports on the status of accounts receivable. This advantage also helps you identify patterns and trends in your clients’ payment behavior.
As you can see, using invoicing software can optimize the efficiency and accuracy of the invoicing process, reduce errors and delays in the payment process, and provide you with greater visibility and control over your company’s accounts receivable.
However, easyap’s solution goes further. How? By offering another series of functionalities that are also advantages: a supplier portal for them to check the status of their issued invoices, a space for your employees’ expenses, the possibility to report taxes to the competent authorities… Contact us and we’ll tell you much more.
