Accounts receivable cycle is the process use to track and collect payments from customers, beginning when purchases on credit are made and ending when payments are received.
There are four stages of the cycle: account setup, invoicing, collections and payment processing. Each stage has its own set of activities that you must complete:
- Account setup: Businesses set up credit terms with their customers.
- Invoicing: Once companies send their invoices that detail their purchase, payment, due date, etc.
- Collections: Businesses will begin the collection process if a customer doesn’t pay their invoice by the due date. This involves sending reminders and making phone calls to collect payments.
- Payment processing: Once businesses have received payment from their customers, they need to process it and apply it to the correct invoices.
What are the most important goals of Accounts Receivable?
Accounts receivable strives to achieve many different goals, but some are more important than others:
- Ensure that all invoices are paid in full and on time. This can be a challenge, especially if a customer has financial difficulties.
- Maintaining customer relationships. Clear communication with customers leads to on-time payments and increases the chances of repeat business.
- Keeping accurate records.
It’s critical to keep accurate records.
This is more complex than it seems, but it is essential for maintaining a steady cash flow.
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