HOW TO MANAGE RECEIVEABLES? (ACCOUNTANT)

Managing receivables is a crucial part of maintaining healthy cash flow and ensuring the financial stability of any business. In Pakistan, where many businesses operate on credit terms, effective receivables management is essential to avoid liquidity issues, reduce bad debts, and improve profitability. For accountants, it involves applying a structured process to monitor credit sales, ensure timely collections, and maintain accurate financial records.

Here is how a professional accountant in Pakistan would approach the receivables management process.

Set Credit Policies

Start by establishing a well-defined credit policy. It should outline:

• Credit eligibility criteria

• Payment terms (e.g., Net 30, Net 60)

• Credit limits based on customer profiles

• Documentation requirements (purchase orders, CNICs, agreements)

• Penalties for late payments

For example, a business may offer a 30-day credit limit with a 2% discount if payment is made within 10 days. Setting clear expectations helps reduce misunderstandings and delays.

Record Sales on Credit

Whenever goods or services are sold on credit, the sale must be immediately recorded in the Sales Ledger or accounting system.

Key details to include:

• Date of sale

• Customer name

• Invoice number

• Amount due

• Payment terms and due date

Using accounting software like QuickBooks, Xero, or Wave can automate this process and reduce the risk of data entry errors. Manual records should be well-documented and updated daily.

Monitor Accounts Receivable

The Accounts Receivable Ledger should be reviewed weekly to ensure accurate tracking of all outstanding amounts. This helps identify:

• Which customers owe money

• How long the amounts have been outstanding

• Which payments are approaching or past due

Classify receivables using aging analysis (e.g., 0–30 days, 31–60 days, 61–90 days) to assess potential risk. This is especially useful in industries like wholesale, retail, or construction where extended credit terms are common.

Send Invoices Promptly

Issuing invoices immediately after a credit sale is crucial. A well-structured invoice should include:

• Invoice number and date

• Business name and NTN

• Customer name and contact

• Detailed list of products/services

• Total amount due

• Payment due date

• Bank details or payment instructions

Sending invoices via email with digital tracking helps monitor delivery and provides a time-stamped record for follow-ups.

Follow Up on Overdue Accounts

Implement a follow-up system for overdue receivables. As soon as a payment becomes overdue:

• Send a polite reminder via email or SMS

• Follow up with a phone call if there is no response

• Reiterate late payment penalties or legal terms from the original agreement

In some cases, escalating the issue to a legal notice or debt recovery agency may be necessary, especially for receivables outstanding beyond 90 days.

Offer Incentives for Prompt Payment

Offering small incentives for early or on-time payment can significantly improve your collection cycle. Common incentives include:

• 2–3% early payment discounts

• Loyalty rewards for consistent payers

• Flexible payment plans for bulk orders

Incentives help build customer relationships while improving cash inflows.

Example – Managing a PKR 100,000 Receivable

Suppose a business sells goods worth PKR 100,000 on February 1, 2025, with a 30-day payment term and a 2% early payment discount if paid within 10 days.

Steps:
• Record the transaction in the Sales Ledger
• Monitor the payment status in the Accounts Receivable Ledger
• Send an invoice immediately after the sale, indicating the due date (February 28)
• On February 25, send a reminder for upcoming payment
• If payment is not received by due date, follow up again in early March
• Customer pays on March 10, and a 2% early payment discount is manually applied

Ledger Update:

Reporting and Reconciliation

Receivables should be reconciled monthly to verify that the ledger balances match bank statements and customer records. Use the following tools for reporting:

• Aging reports to highlight high-risk or long-overdue accounts

• Receivable turnover ratio to measure how quickly you collect debts

• Bad debt allowance estimates for accounts likely to go unpaid

For businesses registered with FBR or SECP, it’s essential to maintain audit trails and comply with recordkeeping requirements under the Income Tax Ordinance and Companies Act.

Legal and Regulatory Framework in Pakistan

• Under Section 174 of the Income Tax Ordinance, 2001, all records related to receivables must be maintained for six years

• For companies, receivables must be properly classified in the Balance Sheet and disclosed in notes to the financial statements as per International Financial Reporting Standards (IFRS)

• Delayed payments from government institutions may require legal correspondence or intervention from relevant authorities

Automation and Tools in 2025

Modern tools can automate large parts of the receivables process:

• ERP systems like SAP or Odoo integrate sales, invoicing, and receivables in real-time

• POS software for retailers with built-in credit sale and customer follow-up features

• WhatsApp business automation to send invoice reminders and payment confirmations

• Cloud-based dashboards to monitor receivables status across locations or departments