Meanings of Accounts Receivable
Accounts receivable is the management of accounts receivable from customers. A debtor is nothing more than a debtor. Accounts receivable in a company is a part of the bookkeeping that deals with managing accounts receivable from customers.
This means that accounts receivable is the opposite of accounts payable. This processes all processes related to the company’s suppliers and service providers.
Note: Vendors are suppliers to the company. Accounts receivable are your customers to whom you deliver or for whom you have rendered services and have issued invoices for them.
The term accounts receivable: what exactly is it?
According to ELECTRONICSENCYCLOPEDIA.COM, accounts receivable accounting is an important field of activity in a company’s financial accounting. This area deals with the recording and administration of transactions with customers or business partners, who in this case take on the role of the debtor, that is, the debtor . Although the customer is referred to as a debtor in the business world, he still enjoys and is viewed as a customer.
The recording of the outstanding amounts to your company is far more than just a purely documentary task. Because the resulting information is also of great importance for the further planning of your company. In terms of your own liquidity and further business relationships with the respective debtor.
Accounts receivable is divided into two major areas of responsibility:
- The receivables management
- The information management
The sub-area of receivables management
Receivables management includes all measures that a company can take in connection with open receivables (invoices). The central element is the dunning process. It is mostly the accounts receivable department who write and send the reminders. If the first reminder is followed by the second reminder and this is already followed by a threat of termination, whereupon a final third reminder is issued and the debtor does not react, then the appropriate measures are either taken in cooperation with a lawyer or the incident is then passed on to a debt collection agency. If there is still no response from the customer, i.e. an out-of-court settlement fails, the accounts receivable department will take appropriate steps. This can range from a payment order to an enforcement order to a court hearing.
The information management sub-area
There are two types of information in information management. On the one hand, there is information about the outstanding and expected payments from customers (debtors) to your company. On the other hand, there is information about the payment history of the relevant customer.
The information about the outstanding payments is important for your company in that it is important for the liquidity of your company and influences your long-term investment planning. It is important that you are always well informed about the exact financial situation in order to be able to make any operational or even strategic decisions.
The information about your customers can be very important, especially for future business, because the current payment history of a customer allows conclusions to be drawn about his general payment behavior. Furthermore, it is even possible for accounts receivable in some cases to draw conclusions about the general financial situation of the customer. If, for example, it becomes apparent that one of your debtors is at risk of filing for bankruptcy, you can still react in good time and stop deliveries. This may help you protect your own business from financial problems before the bills add up.
The debtor risk & scoring
As already mentioned, not all customers pay their bills on time and some just don’t pay at all. The accounts receivable department must also deal with this so-called debtor risk and thus assess the risk of payment options as precisely as possible. With so-called scoring, solvency and the individual risk of default are assessed as precisely as possible. With this you can achieve a certain minimization of the payment default. In some cases, you can also take into account the customer’s creditworthiness data, which comes from external sources.
Usually this scoring takes place in connection with the administration of the customer accounts. However, postings to a one-time or one-time account, as in accounts payable, are not common in accounts receivable. The only exception here is the so-called “clarification account”, to which incoming payments are posted that cannot be immediately assigned with certainty.