Accounts receivable, abbreviated as AR or A/R, are legally enforceable claims for payment held by a business for goods supplied or services rendered that customers have ordered but not paid for. The accounts receivable process involves customer onboarding, invoicing, collections, deductions, exception management, and finally, cash posting after the payment is collected. These are generally in the form of invoices raised by a business and delivered to the customer for payment within an agreed time frame. Accounts receivable is shown in a balance sheet as an asset. It is one of a series of accounting transactions dealing with the billing of a customer for goods and services that the customer has ordered. These may be distinguished from notes receivable, which are debts created through formal legal instruments called promissory notes
A company’s accounts payables comprise amounts it owes to suppliers and other creditors — items or services purchased and invoiced for. AP does not include, for example, payroll or long-term debt like a mortgage — though it does include payments to long-term debt.
Accounts Payable Example
Say on-trend eyewear maker StyleVision orders $500 worth of new frames from its wholesale supplier, Frames Inc., which sends the invoice on Aug. 15 with net-30 terms and no discount for early payment. StyleVision’s bookkeeper creates an accounts payable journal entry and credits Frames Inc.’s account $500 by Sept. 15, then debits $500 from StyleVision’s inventory asset account.
Accounts receivable and accounts payable are the yin and yang of business: When revenues and expenditures stay in healthy equilibrium, the company can seize growth opportunities, and relationships with customers and suppliers remain on a positive footing.
A company’s accounts payable (AP) ledger lists its short-term liabilities — obligations for items purchased from suppliers, for example, and money owed to creditors. Accounts receivable (AR) are funds the company expects to receive from customers and partners. AR is listed as a current asset on the balance sheet.
Lenders and potential investors look at AP and AR to gauge a company’s financial health. Income is important, and so is prudent spending to grow the business and retain customers. Mismanagement of either side of the equation can adversely affect your credit and, eventually, the stability of your business.
Accounts Receivable Duties:
- Oversee collection of accounts receivable
- Create marketing plan for all new accounts
- Manage daily collection and account reconciliation
- Successfully close accounts
- Work closely with accounts payable to ensure all invoices are paid in a timely manner
- Perform analysis of collection and reporting
- Track collection information, providing reports for management as needed
- Maintain customer databases and ensure accurate and timely information
- Maintain all customer contacts
Accounts Receivable Responsibilities:
- Oversee accounts receivable department by performing the following duties:
- Collect payments from customers
- Maintain records regarding customers
- Monitor cash balance to ensure adequate funds are available
- Process customer payments according to established policies and procedures
- Monitor daily collection reports for amount of accounts receivable
- Issue invoices and bills
- Contact customers regarding overdue accounts or accounts with unpaid balances
- Manage daily collections and customer interactions
- Maintain customer files
- Maintain customer records, including customer profiles and credit histories
- Maintain customer databases
- Review customer files and data prior to entering data into the system
- Oversee daily reporting
- Maintain confidentiality of sensitive information
- Attend client meetings
- Maintain and update policies and procedures
- Other duties as assigned
