The Importance Of Accounts Receivable

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According to the Small Business Encyclopedia accounts receivalbe is “the money due from all customers for merchandise or services delivered on credit.” On the balance sheet accounts receivable is shown as a short-term asset.

Accounts receivable appears when the company bills the customer for the goods or services with the bill for not immediate, but for later payment. So, accounts receivable meaning is - the cash “to be received” and therefore accounts receivable has an impact on the cash flow of the company.

On the one hand – accounts receivable is very positive thing, on the other – quite risky. Accounts receivable reflects the sales that company is making. According to common logic it could be suggested that the bigger accounts receivable …show more content…

Usually it is 30 days. But whatever terms company has, inside the account receivable there are always two different types of bills. There are unpaid bills, with the due date that has not yet come, and bills that are …show more content…

The higher is the ration, the more frequently receivables are collected by the company.
▪ The accounts receivable ratio – measures the average amount of time it takes a company to collect on its credit sales. A high accounts receivable ratio could be an indicator of the inefficient credit policy. Higher ratios mean that it takes a company longer to collect its payments. Even though the accounts receivable ratio is often a good indicator of a company's payments collecting ability, it could be misleading. It is an average and because of that customers that carry high balances and pay quickly could skew the average, concealing a problem with the majority of accounts with small balances.
▪ Accounts receivable aging report – lists unpaid customer invoices by date ranges. The purpose of this report is to show the business owner what receivables need to be dealt with more urgently because they have been overdue longer. Companies can use an aging report to determine whether it is taking on too much risk, because past due tend to get more difficult to collect the older they become. Aging reports also guide company billing policies. Usually receivables are categorized into following groups: 30 days, 60 days, 90 days, and 120 days and over. Companies often have accounts receivable management policies that specify which actions are to be taken for each

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