Accounts receivable refers to the money that is owed to a company by its customers. This could be in the form of invoices or other types of credit agreements. Accounts receivable is considered to be an important part of a company's working capital, as they can give a business the funds it needs to continue operating.
It is important for businesses to have a good understanding of their accounts receivable in order to avoid any potential problems. There are a few key things to keep in mind when it comes to accounts receivable, such as:
- Invoices should be sent out promptly and accurately
- Credit terms should be clear and reasonable
- Collection efforts should be made in a timely manner
- Accounts receivable should be monitored on a regular basis
How to monitor accounts receivable
The most common method is to simply take the total amount of outstanding invoices and divide it by the number of days in the billing period. This will give you a daily average of how much money is owed to the company.
Another method is to use the receivables turnover ratio. This is calculated by taking the total amount of sales and dividing it by the average accounts receivable balance. This will give you a good idea of how quickly customers are paying their invoices.