A concern and a bothersome yet common element in business accounting. That's what accounts receivable. This has been the case since the beginning of commercial activities and has not changed with the advent of this new digital era. Therefore, they continue to have an impact on automated accounting and invoice approval. That is why, in this text, we want to explain in detail what accounts receivable are in accounting terms, how they are classified and recorded today, and their risks. And, of course, how we at easyap can help you manage them.
What is an account receivable?
The first thing is to establish what an account receivable is at a conceptual level. Any ordinary person would understand an account receivable to be any invoice or payment that has not been paid. However, we are talking about a term that is more profound, given its importance in companies.
By technical definition, at easyap we say that an account receivable is an accounting term that refers to the amounts that a company expects to receive from its customers for the goods or services it has provided them on credit. Likewise, it is a right that the company has over the customer to receive payment in the future.
Accounts receivable arise when a company offers credit terms to its customers so that they can pay their invoices within a certain period. For example, if a company sells products with a 30-day payment term, an account receivable will be generated at the time of sale and will remain until the customer makes the payment. In other words, accounts receivable are those that do not require or entail immediate payment.
What is CxC?
As we define this concept, several others arise around it. Without going any further, one of the most popular is CxC. You only need to dive into Internet search engines or be familiar with accounting and finance to see that it is very common.
In this sense, CxC is the abbreviation commonly used to refer to accounts receivable, using the initial letters of the term to create an acronym. In other words, "Accounts Receivable."
How are they classified in accounting?
As we have already mentioned, accounts receivable are of fundamental importance in accounting, as they have a significant impact on the liquidity and solvency of a business. Without them, it is impossible to carry out medium- and long-term financial planning, as they determine your liabilities, assets, and capital over a given period of time.
Likewise, they are classified into two main categories: trade accounts receivable and non-trade accounts receivable.
Trade accounts receivable
They are the arise from the sale of products or services to customers. They are a current asset and are expected to be paid in the short term. Within this category, you can include invoices issued, advance payments you have already received, or trade discounts, among others.
When talking about trade accounts receivable, you can also classify them into different categories according to their age. In other words, the time that has passed since we issued the invoice or credit:
– Currentcurrent, which are those that you expect to be paid within 30 to 60 days.
– Vencidas– these are those that are past their due date and have not been paid.
– Ddoubtful, which are invoices where you have uncertainty or doubt regarding payment by the customer.
– Incourable, which are those considered irrecoverable and which you do not expect to be paid.
Non-trade accounts receivable
In turn, non-trade accounts receivable are those that are not related to the sale of goods or services. Therefore, among them you can include loans made to employees, credits granted to third parties, taxes to be recovered, deposits that still have to be returned, and so on.
How should accounts receivable be recorded?
Once the concept has been explained, and if you are not particularly knowledgeable in the field of accounting, you may ask yourself the following question: How should they be recorded on a balance sheet? Based on our experience in the accounting and financial world, we recommend the following for recording your accounts receivable:
– Create an accounting account. You will need to record it on the balance sheet as a current asset.
– Record the invoice. When you issue invoices to your customers, you must record the corresponding amount as an account receivable in your accounting ledger. To do this, you have to debit the accounts receivable account and credit the sales account.
– Record payments received. When you receive a payment from a customer, you must record it in the transactions section of your accounting ledger.
It may seem like a simple process. However, for large companies that have a high volume of invoices and manage billing processes with many documents, it becomes a truly complex procedure. This is where invoicing software can help you, although we will explain how later on.
Risks of having accounts receivable and how to reduce them
First, we want to emphasize that that accounts receivable for companies carry certain risks. Above all, at the accounting level. The best known and most common are listed below:
– Non-payments. One of the biggest risks when keeping track of accounts receivable is seeing that some customers do not pay. This can affect your company's ability to cover its expenses and financial commitments to other entities or banks.
– Collection costs increase. Managing accounts receivable can be costly, as it requires resources. We are talking about personnel, equipment, and other administrative expenses.
– Wasted time. It is a process that can be time-consuming and distract your company from other important tasks.
Based on our experience, we recommend following some of these practices to reduce these risks:
– Before granting credit to a customer, it is important to check their credit history and ability to pay. If they appear in delinquency files, if they have many outstanding loans, their solvency...
–– Carry out timely billing with organized plan. This will help you avoid mistakes and delays that could delay payment.
– Offer payment incentives. For example, offering discounts for early payment or cash payments can motivate your customers to pay faster.
–– Set credit limits. Set credit limits for each customer, as this can also help you reduce the risk of non-payment.
Above all, we recommend using the best technology to keep good control of accounts receivable. To this end, technology offers very interesting and practical solutions.
How does the easyap service help with accounts receivable?
It is precisely at this point that software such as easyap software such as easyap comes into play. It can be the accounting ally you are looking for. With it, you will be able to manage accounts receivable and delinquent accounts , taking advantage of several benefits, since:
– It facilitates the tracking and recording of issued invoices. Electronic invoicing software allows you to keep a detailed and up-to-date record of the invoices you have issued to all your customers. This means you can track your accounts receivable much more efficiently.
– Improves the accuracy and speed of invoice delivery. With a solution like the one we developed at easyap, we guarantee that invoices will be sent accurately and quickly to your customers. This speeds up the payment process and reduces the possibility of delays or errors in your invoicing process.
– Automate all accounting and the payment reminder process. With electronic invoicing software, you can also send automatic payment reminders to your customers. This also helps you and your company reduce the number of outstanding invoices.
– Provide accounts receivable tracking reports. A high-quality digital tool for electronic invoicing like ours is also capable of generating detailed reports on the status of accounts receivable. This advantage also helps you identify patterns and trends in your customers' payment behavior.
As you can see, using electronic invoicing software can optimize the efficiency and accuracy of the billing process, reduce errors and delays in the payment process, and provide you with greater visibility and control over your company's accounts receivable.
However, easyap's solution goes even further. How? By offering another set of features that also provide advantages: a supplier portal where they can check the status of their issued invoices, a space for your employees' expenses, the ability to report taxes to the relevant authorities... Contact us and we will tell you much more.
