Accounts Receivable for Small Business

Accounts Receivable for Small Business

Allowing customers to take delivery of good and services on credit encourages them to buy more, which raises sales. Offering discounts to customers who pay quickly can encourage them to settle their accounts and keep revenue flowing well. There will also be times when items will be returned.

Using Quickbooks to create invoices, track payments and credits or discounts can ensure that your accounts receivables reports are accurate. This will be vital in predicting cash flow for your business. The top three items that determine the liquidity of your business are cash and short-term investments, and accounts receivables. If your business isn’t large enough for short-term investments, that puts AR even higher on the vital asset list.

The downside to extending credit is that there will always be the risk that some customers do not pay or do not pay in full. Using an estimated expense account known as an Allowance For Doubtful Accounts will keep your balance sheets in touch with reality. The most effective way to create the estimate is to look at payment history and use an account aging method to allow for a percentage of outstanding debts.

Accurately tracking invoices, payments and applicable discounts or credits can be time-consuming and require a fair amount of specialized training to operate efficiently. It is not uncommon for companies to outsource this function. Prompt processing of payments, credits and discounts can improve customer satisfaction.

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