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HOW TO MANAGE RECEIVEABLES? (ACCOUNTANT)

Managing receivables refers to the process of ensuring that a business’s customers pay their bills in a timely manner and that the business has accurate and up-to-date records of what is owed to it. Here is how you can manage your receivables:

  1. Set credit policies: Establish clear and fair credit policies for customers, including the terms of payment, credit limits, and the consequences of late payment. This helps to avoid misunderstandings and late payments.
  2. Record sales on credit: When making a sale on credit, be sure to record the amount of the sale, the date of the sale, and the terms of payment in a sales ledger or accounting software.
  3. Monitor accounts receivable: Regularly review the accounts receivable ledger to track the amount of money owed to the business by customers and the payment due dates. This helps to identify any potential issues with customers and take appropriate action.
  4. Send invoices: Send invoices promptly and accurately to customers after a sale on credit. This helps to ensure that customers are aware of what they owe and when payment is due.
  5. Follow up on overdue accounts: If a customer’s payment is overdue, follow up with a reminder of the payment due date and the consequences of late payment. This helps to encourage timely payment and avoid prolonged overdue accounts.
  6. Offer incentives for prompt payment: Consider offering incentives, such as discounts, for customers who pay their bills on time. This helps to encourage prompt payment and improve cash flow.

Example: Suppose a business sells goods on credit worth PKR 100,000 to a customer with payment due in 30 days. To manage the receivable, the business would:

  • Record the sale in the sales ledger
  • Monitor the accounts receivable ledger regularly to track the payment due date
  • Send an invoice to the customer promptly, indicating the amount due and the payment due date
  • If the payment is overdue, follow up with a reminder of the payment due date and the consequences of late payment
  • Offer an early payment discount of 2% if the customer pays within 10 days of the invoice date

Ledger Account Date Amount Payment Due Date Status

Accounts Receivable Feb 1 PKR 100,000 Feb 28 Overdue

After following up with the customer, the payment is received on March 10, and the ledger account is updated as follows:

Ledger Account Date Amount Payment Due Date Status

Accounts Receivable Feb 1 PKR 100,000 Feb 28 Paid (Early Payment Discount of PKR 2,000 applied)

By monitoring the accounts receivable ledger and following up with customers, the business can ensure that its customers pay their bills in a timely manner and improve its cash flow.