What are Accounts Receivables and Their Types?
Accounts Receivable for Beginners
Accounts receivables are the payments your customers owe you for your products/services availed on credit. From the customer perspective, it refers to the amount you owe the business you purchase from. From the business owner’s perspective, it refers to the amount your business is due to receive for a service availed or a sale made. It is vital to ensure a sound accounts receivable management system for a healthy cash flow. A few reasons to focus on your accounts receivables are a healthy cash flow, good customer relations, and bank reconciliation, etc.
Save your time and money by avoiding mundane manual tasks and reducing follow-ups with the involved stakeholders. Not managing AR properly can lead to a negative cash flow. Maintaining perfect accounts receivable workflow helps your business flourish without any hiccups. For accounting starters, the accounts receivables are classified as Current/Liquid Assets (assets convertible into cash, within a one year period).
Accounts Receivable Turnover Ratio
The accounts receivable turnover ratio helps determine a business’s liquidation abilities. In simpler terms, it calculates the number of times your receivables are converted to cash in a certain period. The higher your ratio, the healthier your business finances are. A low ratio may reveal your poor collection processes, insufficient collection processes, or perhaps even your customers with a low credit rating.
Why is Accounts Receivable Critical for SMBs?
Reports reveal that at least one-third of small and medium businesses plan to turn to automation software by 2025. In these times when there are delays in payments made to businesses, here is what your business can do to stay ahead with the times -
- Regular AP Review
- Know your customers well
- Implementing positive and negative incentives
- Crystal-clear credit policies
General Steps in an AR Process
Enforcing Credit Policies :
Creating an enforceable action plan will help you decide how to handle the situation in case of delayed payments, bad debts, etc.
Providing Customer Invoices :
It is important to let your customers know how much they owe your business for their purchase. That documentation is called an invoice and consists of all payment-related information.
Tracking Your Accounts Receivable:
There are fair chances that your customers may forget their payment deadlines. It is a good idea to provide automated solutions to beat the repetitive nature and manual efforts involved.
Creating an Account for Receivables:
On nearing the payment deadlines, you might want to distinguish between payments received and not received, to record all sales made.
Factoring Receivables at a Glance
Factory receivables refer to the sale of accounts receivables, and it is recommended if your business is tight on cash flows. However, it is more of a short-term benefit than a long-term one. In simple terms, here are a few benefits of accounts receivables factoring -
- Improved cash flow.
- Enjoy improved financial status.
- Your business stays in your control.
Accounts Receivable Solutions
Accounts receivable solutions help streamline your invoicing and payment processes. Using automation solutions can help your customers feel important and listened to. What does an AR automation comprise?
- Integration software
- Live chat features
- Invoice submission, generation, and tracking
- Security and Compliance
Curious? Check out our CratoRev accounts receivable automation solution, designed to eliminate all your pain points.
How CratoRev Helps Boost Your Business
Here is how your business can tremendously benefit from using CratoRev’s services -
Cash Sales - When the customer pays for your products or services immediately upon purchase.
- Auto-piloted Billing
- Intelligent Collection
- Smart Cash Application
Credit Sales - When customers purchase your products or services with delayed payment.
- Order Management
- Quick Payment Collection
- Cash Application
Benefits of AR automation
Make smart business decisions through real-time tracking via several KPI metrics, and let your business thrive.
Get Timely Reminders:
Why worry about manually reminding customers, when automation can help you with that? You do not have to worry about it anymore!
Seamless AR Dashboard Analysis:
You can perform number crunching without any trouble! With real-time data at your fingertips, you can measure your business’s financial health, make the right forecast predictions, etc.
High Security and Accuracy:
When you are not using papers or e-mails, your business is safe from issues like data breaches, non-GDPR compliance, fraudulent invoicing, etc. Also, manually performing repetitive tasks can lead to human errors. Automation can help save you loads of rework time and effort.
Best Practices Collecting Accounts Receivables
Here are a few ideas to efficiently streamline your accounts receivable processes in 2022:
Enforcing Credit Policies
A thorough credit policy means you will not have to endure customer laxness, delayed payments, etc. It is recommended to set up the criteria, terms, and conditions to filter out the bad debtors. Many solutions allow you to deal with late payments and unpaid invoices smoothly.
Check out Rocket Receivables, a user-friendly debt collection service designed to boost your receivables. If your business is overflowing with unpaid invoices and dues, this two-stage debt recovery system can help ease your life.
Do Not Mix-n-Match Your AR Automation Solutions
It is not new that the accounts receivable process involves multiple activities, and hence, it is highly recommended to stick to a single tool to meet all your AR needs.
Prioritize Customer Comfort
Essential to ensure your customer does not have any trouble with the invoices. It helps create a favorable payment system that permits timely payments.
Accounts Receivables are critical to a business’s healthy functioning. The different types of receivables include Trade Accounts Receivables, Notes Receivables and other Accounts Receivables. The accounts receivable turnover ratio is a key performance indicator of a company’s financial health. It is crucial for SMBs to prioritize accounts receivable to boost their performance. Let your business flourish with automated AR solutions. With plenty of choices available, pick the right bookkeeping automated software for your business. Explore our website to learn more about our solutions.