Accounts Receivable Definition And its Types

There are 3 types of receivables, one of which is account receivable. Account receivable (AR) is a right or bill from a company to another party that will be billed in accordance with the specified time.

Usually, this happens when there is a transaction from the company that sells goods or services to customers on credit.

What you need to know, account receivable are usually not stated in a letter of agreement like other bills. Therefore, the repayment is not guaranteed because the collectible party can be absent from the bill.

In addition, there are still many things you can know about AR through the explanations below.

Types of accounts receivable

In account receivable, there are 2 types of receivables that you need to know:

  • Notes receivable
    First, there is a note receivables is an asset of the company that contains a promise to pay to a certain party based on a certain date. When the debtor is concerned to repay the specified amount, notes receivables can be traded. If traded, who is entitled to receive payment is the owner of the notes receivables.
  • Account receivable
    Second, there are account receivables where, these receivables are not guaranteed by an open account. Typically, these receivables are an extension of short-term credit for customers and have a payment term of 30-90 days.

Problems with account receivable that often arise

Often, debt is seen as a double-edged sword. On the one hand, receivable can be a point that can bring profits to the company. On the other hand, receivable can cause losses if the collectible party cannot pay the existing receivable in accordance with the amount and time that has been determined.

In general, the problem that arises in account receivable is the problem of unpaid receivable. This will have an impact on disrupted cash flow, increased operational costs because they have to make re-collections and the company must suffer losses due to unpaid receivables.

Although it can be a problem, receivables are still seen as a way to make a profit. Selling credit to other parties can be a marketing strategy to make a profit and a different way to fight tough competition.

To overcome unpaid receivables, here are tips you can do so that you no longer have problems with bad debts.

  1. Credit application procedure

The first way is to make a clear credit application procedure. This is often overlooked because, companies only see profits. Therefore, clear and detailed credit application procedures need to be made so that companies can avoid problems. One example that can be seen is, the types of parties who apply for credit (Are they large retailers or retailers who are usually near the market)

  1. Appropriate methods of managing accounts receivable

Every company needs to create a definite procedure for managing accounts receivable. This is necessary to avoid delays in payment of receivables and unpaid receivables. In this case, the billing process and billing schedule need to be made as good as possible in accordance with the credit application procedures that have been listed. Of course, smooth payment of receivables can bring profits so that the company’s sales remain regular.

  1. Handling late payment of receivables and unpaid receivables

Next, we come to the problem that is not desired by the company, late payment of receivables and unpaid receivables. If this problem occurs, you don’t need to be afraid and need to see what things you can do to charge the collectible party. Handling of uncollectible receivables is based on how long the receivables have been unpaid.

  • Overdue receivables under two weeks
    For this stage, it can still be handled by collection by the sales team.
  • Overdue receivables over two weeks to one month
    Supervisors begin to intervene to collect payments to parties who have not paid.
  • Receivables overdue over one month The
    manager takes exact steps to collect payments. Usually, the collectible party will be given a statement letter along with information regarding the ability to pay and the agreed timeframe.
  • Overdue receivables over three months This
    type of receivables can be classified as unpaid receivables because, most likely, the collectible party has not paid. For this reason, special handling is needed to overcome this.
  1. Safeguarding accounts receivable

Because account receivable is included as company assets, special steps are needed to secure them. Therefore, invoices and billing documents are needed for monitoring so that the company can monitor existing receivables. In addition, periodic audits are also needed to check existing receivables so that they can get something out of it.

  1. Accounts receivable policy

Each company has a different policy for customer accounts receivable. For example, an allowance for unpaid accounts receivable. This is done for account receivable with a large level of risk. With a backup, losses can be avoided.

Regular collection of accounts receivable helps maintain a regular company cash flow . In addition, this also has a positive effect on the company’s financial records so that they are recorded properly which is useful for many things.

Receivable collection is now easier with accounting software. Making invoices that are practical and uncomplicated makes the billing process easier.

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