When a company provides goods or services to a customer, they expect to receive compensation. There are times when money doesn’t change hands immediately. That means the company has an accounts receivable for money in the future. Companies have to monitor these transactions to ensure that they are paid at the future date promised.
Accounts Receivables Explained
Invoices that a company has for their clients are known as account receivables, or AR, which is money that will be paid by the customer in the future. It could be lines of credit that the customer has with the company or transactions that haven’t been paid immediately like those through credit situations. Basically, the company has made the sale for goods or services but hasn’t received the money at the time of the sale. It’s accepted an IOU from the customer or client.
Why Businesses Need AR
While cash might be the preferred way for a company to do business, many customers will purchase goods or services when they don’t have to pay immediately. There are many businesses that establish lines of credit with their loyal customers as a sales tactic. Other businesses like utilities will send a bill after a certain length of constant service. Some industries like construction will buy supplies on credit and are billed monthly for the transactions. These are all AR situations.
Beyond Accounts Receivables
When a customer can’t or won’t pay for the transaction after a certain length of time, the account can be placed in collections. This means that if there’s a recurring relationship, it will be severed until the customer can make good on their overdue account. The company might call to find out why payment hasn’t been made. Once the debt has gone on too long, the company can send the customer to a collections department within the company or an outside collection agency. Agencies will often pay for the collections accounts for a few pennies on each dollar of debt.
Accounts Receivables Versus Accounts Payables
Accounts receivable is the money that the company is owed for goods or services. Accounts payable is the money that the company has to pay for its own goods or services. Accounts payable would include utilities like electric or internet and phone services for the company to operate. These are recorded very differently and require varied skills for accounting.
Education Needed for AR Clerks
Unlike bookkeepers or accountants, the AR clerk doesn’t need years of education. They might know how to do some billing and enter information into accounting software. They don’t often have to know tax laws or other accounting skills to perform their jobs. They normally deal with customer payments and might make occasional calls regarding the customer’s account if there are issues. An AR clerk could perform this job with an associate’s degree in accounting. CNN reported that the accounts receivables manager was one of the fastest growing positions just a few years ago.
Accounts receivables are debts that are owed to the company, and they’re due within a certain time period. Many companies use AR as a sales tactic like the advertisements that promise customers they don’t have to pay for their purchases before 90 days. They’re essentially buying on credit with the company. Accounts receivable a good way for companies to increase sales as long as they get paid when promised.
