Accounts receivable are amounts a company has a right to collect because it sold goods or services on credit to a customer.
Accounts payable are amounts a company owes because it purchased goods or services on credit from a supplier or vendor. Accounts receivable are assets.
Accounts payable are liabilities. In fact, account receivable is a client’s debt, and account payable is your debt to the supplier. Account receivable and account payable management is extremely important for overall company’s efficiency. You must be wondering how to keep it all under control and not to get lost? Our advices will help you simplify your company’s cash flow management.
Define a Clear Credit Policy
Credit policy is extremely important for efficient operation of the financial department manager. Regular customers can and should be provided with flexible payment terms.
You must strictly adhere to stipulated conditions in order to obtain a delay or discounts from suppliers. Those clients, who pay for the received goods as soon as they arrive, can take advantage of regular customers: discounts and deferred.
Reduce the Time of Transaction Processing
Companies with short sales cycle are in a better position than those with long sales cycle. Short sales cycle saves both time and money. Excessive sales cycle may indicate that it is difficult for the company to pay the bills due to delays in receiving profits.
You can avoid such situation by setting clear deadlines for receivables and payables. It is better to set short-term receiving payments for customers, so that it would be easier for you to pay your bills.
Imagine you are a juggler who juggles receivables and payables. You think it is foolish?
Precoro team wouldn’t agree with you. Receivables and payables are two main indicators that affect the overall performance of the company. Increases in receivables indicate an increase in demand for a particular product – should be responded by increasing the volume of production.
However, if debts from clients hang in the balance sheet, then it is a significant reason to cease all cooperation with them until the maturity of their debt. Payables indicate that it is better to temporarily restrict the flow of new purchases until you pay for the past ones. Thus, purchasing department, production and finance department are linked through at least these two indicators.
In order to keep track of your business’s cash flow, it is necessary to handle a large number of documents that is a consuming and laborious process for any manager.
Special software that is used to automate all operations saves both money and time spent on documentation and its processing. Likelihood of human error reduces. The percentage of lost data and hung payments is also reduced to zero.
Receivables and payables are the main indicators of company’s financial state. Their tracking helps leaders not only in evaluating the business performance, but also in making informed and intelligent decisions that affect your company’s future.