The process is a simple turn of events that make the Receivables traceable and manageable.įour Main Steps for a Typical AR Process: It is advisable for a company to setup an AR process to determine the customers that have already paid and identify any payments that are overdue. Basically, firms choose to offer receivables to encourage customers to choose their products over the competitor’s products.
Accounts Receivables are important assets to a firm, while Accounts Payable are liabilities that must be paid in the future by the company. While AP is the debt a company owes to its suppliers or vendors, accounts receivable is the debt of the buyers to the company. The Receivables should not be confused with Accounts Payable (AP). Generally, Accounts Receivables (AR), are the amount of money owed to the company by buyers for goods and services rendered. The cost of sales on credit is what is referred to as Accounts Receivable. Most businesses operate by enabling their clients to buy goods in credit. While the utility or energy company waits for its customers to pay their bills, the unpaid invoices are considered Accounts Receivable. Most companies operate by allowing a portion of their sales to be on credit, offering their clients the ability to pay after receiving the service.įor example, utility companies typically bill their customers after they have received electricity. If a company has Receivables, then they’ve made a sale, but have not yet collected the money from the purchaser. In business, AR represents a line of credit extended by a company, due within a relatively short timeframe, which could range from a few days to a year.
In your personal life, an example of Accounts Receivable would be buying a ticket to a concert or sporting event for a friend with the understanding that they will pay you back later. Accounts Receivable (AR) refers to the outstanding invoices a company has, or the money it is owed from its clients.
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