August 23rd, 2022
Understanding the importance of your account receivables, or A/R, is a very important part of running any business. In this article, we’re going to talk about what receivables are and why they are important. We will also show you how to check your receivables and how they can impact your business. First, let’s define receivables. Receivables are funds owed to a company by its debtors, or customers. It is a short-term asset used to record the sales the business has made by selling goods or providing services. Receivables are a key part of any organization to ensure that your customers are paying you for the goods or services that you have provided. Checking your A/R should be done routinely in your business operations. Unfortunately, even though you have done your part in providing your goods or services, sometimes you will still have to follow up with your customers to collect your payment. An alternative to this for a company that provides services would be to have your customers pay upfront for your services, or even provide a deposit.
Tools for Account Receivables
A great tool to use to track your receivables is by using QuickBooks. QuickBooks syncs to almost any operating software that you choose to use. From there, you can run reports in QuickBooks to see what customers still owe you money, if they are current or past due, and how much money is owed in total. At this step, it is important to note what your invoice terms are. They can be whatever you choose, but common terms are COD, cash on delivery, or NET terms. NET terms means that the client has that many days to pay their invoice. The five most common NET terms are NET 7, 10, 30, 60, and 90. When you are structuring your business, you need to take into consideration how long your business can sustain without payment. These terms will assist you in reading and analyzing your reports.
When you open QuickBooks, you will see your dashboard.
At the very top, you see Income. This is a very brief but accurate depiction of your cash flows. This is great information for a quick glance, but we want to get down to the specifics. There are a few different reports that you may use, but we’re going to focus on two that provide the most beneficial information: The A/R Aging Summary Report and the A/R Aging Detail Report. You can run these reports by looking at the sidebar on the left, Reports. Scroll down under Standard Reports and look under the category Who Owes You.
The summary report will give you an overview of how much is owed by each customer and it will also break down the balance you have in each past due category (Current, 31-60 days past due, 61-90 days past due, and 90+ days past due). You can change your aging method by the number of days in the aging period, the number of periods, and the minimum number of days past due. The detail report does this, but it also breaks it down further into sub-customers and invoices by the client, the due date, and the date that the invoice was sent out. You can also customize the reports to show a specific date range, specific customers, and more. See the difference below:
Other reports you may choose to use are:
- Customer Balance Summary, which is very similar to the A/R Aging Summary, but provides the open balance for all your customers and sub-customers A-Z. This report does not show you if the invoices are current or past due, just that there are funds owed by this client.
- Open Invoices, which is just like it sounds, a list of all open invoices that your company has
All these reports are very user-friendly and easy to use to capture the information that you are looking for. So, for example, by looking at the A/R Aging Summary, we can see that Dew (customer) owes ABC NEWCO’s Company $2,640, whereas Jimmy Smith has a credit of $2,000. A credit could mean that the customer has pre-paid, and their invoice has not yet been sent out, or that they provided a deposit for the work to begin.
Some customers may require a little more follow-up to get their invoices paid, and some may pay as soon as the invoice is received. Every business needs cash to sustain its operations, whether you are manufacturing and selling goods or providing services. Ultimately, if your customers are not paying, you do not have money to invest in future customers or pay for your operating expenses. To try to avoid any issues with collecting payment, make sure that your customers are aware of your payment terms upfront, and if you can, provide them with a cost for your goods or services. It is good business practice to be clear about what you are providing and your expectations in return.
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