Proses of Account Receivable

What is an Accounts Receivable?
If a company has Receivables, then they’ve made a sale, but have not yet
collected the money from the purchaser. Most companies operate by
allowing a portion of their sales to be on credit, offering their clients the
ability to pay after receiving the service.
For example, utility companies typically bill their customers after they have
received electricity. While the utility or energy company waits for its
customers to pay their bills, the unpaid invoices are considered Accounts
Receivable.
Most businesses operate by enabling their clients to buy goods in credit.

The cost of sales on credit is what is referred to as Accounts Receivable.
Generally, Accounts Receivables (AR), are the amount of money owed to
the company by buyers for goods and services rendered. The Receivables
should not be confused with Accounts Payable (AP).
While AP is the debt a company owes to its suppliers or vendors, accounts

receivable is the debt of the buyers to the company. Accounts Receivables
are important assets to a firm, while Accounts Payable are liabilities that
must be paid in the future by the company. Basically, firms choose to offer
receivables to encourage customers to choose their products over the
competitor’s products.
It is advisable for a company to setup an AR process to determine the

customers that have already paid and identify any payments that are
overdue. The process is a simple turn of events that make the Receivables
traceable and manageable.
Four Main Steps for a Typical AR Process:

1. Establishing Credit Practices
2. Invoicing Customers
3. Tracking Payments Received and Payments Due
4. Accounting for Accounts Receivables
However, using economies of scale, the process may differ for large and
small firms. Large firms have a larger cash inflow, so they typically invest in
highly skilled credit management teams and IT systems to help improve
and manage the process efficiently.
Step 1: Establishing Credit Practices

The first step is for the company to develop a credit application process.
The company will then decide, based on the credit-worthiness of the
applicant, as to whether they will offer goods on credit. The company might
choose to offer the credit to individual customers or other businesses.
Also, the company will establish terms and conditions for credit sales. The
document outlines the client’s obligations and requirements. The firm must
ensure that it complies with Federal laws on credit, such as full disclosure
of the credit practices. For example, the company has to clearly
communicate the interest rates for the credit.
The terms and conditions differ for large and small firms.
Large companies may opt to give a customer longer periods of time.

On the flip side, small firms cannot afford to offer goods on credit for longer
periods due to their less cash flow and low capital. How soon the money is
collected on this debt from the client will be a contributing factor in
ascertaining the company’s capital needed to run the business and the
cash flow.
Step 2: Invoicing Customers

An invoice is a document provided to the buyer detailing the products and
services that have been rendered, the costs of those products and
services, as well as the date payment is expected.
Each invoice has to have a unique invoice number for easy retrieval. The
customer is then given the chance to choose whether they want to receive
electronic or physical invoices. Large firms prefer to send both the
electronic and paper invoices.
Unlike paper invoices, electronic invoices are less expensive and

convenient. As such, small firms mostly opt to use the mails to deliver the
invoices.
The longer a company takes to send an invoice, the longer it takes for the
customer to make payments. The invoice must be sent promptly.
Step 3: Tracking Accounts Receivable

This step is performed by an Accounts Receivables (AR) Officer. The
Officer keys out a payment deposited into the bank account of the
supplier, feeds it into the AR system, and then allocates it to an invoice.
The officer also reconciles the AR ledger to be certain that all the payments
are accounted for and properly posted, and then issues monthly statements
to clients. The statement provides details for the customers about the
amounts owed as per previously sent invoices.
The tracking process differs in large and small companies. Smaller
companies may not have an advanced system in place to track payments,
and may use manual AR tracking by using tools, such as Excel. In a
manual process, companies use spreadsheets to record when they send
the invoices, and when they receive payments. Small companies also may
not have enough staff to appoint an AR Officer, in which the company may
hire a professional accountant to fulfill this function.
Larger companies typically invest in a team of AR Officers to conduct the

tracking process, and they use some form of an accounts tracking software
system to help ensure accuracy. The system helps the AR Officer to be
more effective, because it automatically alerts the AR Officer to which debt
is outstanding.
Step 4: Accounting for Accounts

Receivable
The Collections Officer establishes the due date for payments. After
identification of unpaid debts, the account department makes journal
entries to record the sales. The process involves both accounting for bad
debt, or the unpaid debts, as well as identifying early payment discounts.
A “Day in the Life” of an AR Professional

AR Officers are the most important personnel involved in developing and
implementing the Accounts Receivable process. Their day-to-day activities
typically include overseeing money owed to the business by its clients.
A typical day for an AR Officer would involve activities such as verification

of credits data, classifying the debts, and making journal entries for the
transactions. The AR Officer also oversees a team of clerks, analysts, and
accountants in addition to debt collectors.
Each day the Officer ensures that the team is working in collaboration to
ensure success of the established AR process.
For instance, a customer may request to purchase goods on credit. The AR

Manager would require the credit analysts to identify credit-worthiness of
the customer.
The manager would ensure that once the customer was identified as credit-
worthy that the invoices would be prepared by the AR Clerks and issued in
time.
Next, the accountants would determine the total credit sales for the day.
The information is then passed to the debt collectors including the due date
for money collection.
The Effect Automation Has On The Accounts Receivable

Process
Procurement:
The Purchasing department places the order and transmits a copy of the
purchase order (PO) to the AP department. The organization receives the
goods or services—either through the Receiving department or the
employee who ordered them—and the vendor sends the invoice to AP. You
can learn more about the entire procure to pay process here.
Invoice Processing:
An AP clerk manually keys the invoice data into an accounting system
before physically storing the paper document in a filing cabinet. New
supplier information is entered using the organization’s naming conventions
to avoid duplication. Both new and existing supplier information is checked
for accuracy against internal sources, such as the master vendor file, and
external sources, such as the IRS TIN matching service and the U.S.
Treasury Department’s Office of Foreign Control (OFAC) list of
organizations that are banned from business in the United States. You can
learn more about electronic invoicing here.
Invoice Approval:
An AP Clerk conducts a three-way match. A three-way match compares
the PO, the receipt, and the invoice to identify any inaccuracies or
mismatched data. An AP Manager prepares and approves paperwork for
any exceptions for short delivery, damaged items, wrong items shipped, or
other issues.
Payment:
The AP team prepares the payment, either by writing a check or setting up
a transaction via Automated Clearing House (ACH) or electronic funds
transfer (EFT). An AP Manager, Controller, or CFO (depending on the
company’s approval process) approves the payment, authorizing the
department to take an early payment discount for a supplier if the payment
is being made within the date range specified in the terms. The payment is
sent via U.S. mail, wire transfer, ACH/EFT, shipping company, or courier.
Vendor Management:
The supplier calls the AP department to ask where the payment stands. An
AP Clerk researches the question, and determines whether the invoice is
still in the approval process, or the payment is in the mail.
System Upgrades:
The information technology (IT) department monitors the company’s
enterprise resource planning (ERP) system and any hardware
and software the AP department is using. The IT team approves and
installs new versions of software as needed. The CTO’s team considers
any proposals from AP for new technology and determines how to integrate
it with the company’s legacy systems.
Reporting and Analyzing:
The AP department prepares and studies spreadsheets they’ve built in
Excel, or a similar tool, analyzing all transactions, monitoring the
department’s performance and metrics, including days payable outstanding
(DPO). The CFO oversees the organization’s cash flow through
conversations with the AP Director. The CEO receives written and verbal
reports from the CFO on the performance of the organization.
The Continuous Evolution of Accounts Receivable Processes
Just like in Accounts Payable, manual processes in the Accounts
Receivable departments create major inefficiencies and excessive
overhead, wreaking havoc on a company’s cashflow.
Outdated, paper-based processes increase bad debt write-offs and keep

companies from accessing the cash they need to support growth goals.

Proses of Account Receivable

Uploaded by

Copyright:

Available Formats

Proses of Account Receivable

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Proses of Account Receivable

Uploaded by

Copyright:

Available Formats

What is an Accounts Receivable?

Most businesses operate by enabling their clients to buy goods in credit.

While AP is the debt a company owes to its suppliers or vendors, accounts

It is advisable for a company to setup an AR process to determine the

Four Main Steps for a Typical AR Process:

Step 1: Establishing Credit Practices

Large companies may opt to give a customer longer periods of time.

Step 2: Invoicing Customers

Unlike paper invoices, electronic invoices are less expensive and

Step 3: Tracking Accounts Receivable

Larger companies typically invest in a team of AR Officers to conduct the

Step 4: Accounting for Accounts

A “Day in the Life” of an AR Professional

A typical day for an AR Officer would involve activities such as verification

For instance, a customer may request to purchase goods on credit. The AR

The Effect Automation Has On The Accounts Receivable

Outdated, paper-based processes increase bad debt write-offs and keep

You might also like