Accounts receivable represents funds a company is entitled to receive from third parties for goods or services provided. This essential component of business operations ensures a steady cash flow and directly impacts a company’s financial health and sustainability.
Imagine being able to track payments efficiently while maintaining healthy relationships with your clients. Managing accounts receivable effectively can help avoid cash flow disruptions and improve financial stability, making it a critical aspect of business success.
Struggling with manual processes and late payments in your accounts receivable management? HashMicro’s Accounting Software provides innovative solutions to automate billing, track payments, and improve your financial operations seamlessly.
In this article, we will discuss the key characteristics and types of accounts receivable. You’ll also learn how technology, including ERP systems, can improve accounts receivable processes and enhance overall financial efficiency. Also jump in to our best accounting software article to help you choose which software suits you the most. Let’s go!
Key Takeaways
|
Table of Content:
Table of Content
The Definition of Account Receivable
Before learning more about accounts receivable, you must first understand the definition. Account receivable is a payment billing that a company proposes to consumers or buyers who have been in debt. In other words, it is proprietary of a person or a party in the form of money that he should pay.
Many experts disagree about the definition of accounts receivable. For example, Mohammad Muslich said that accounts receivable occur because goods or services are sold on credit, generally to increase sales.
In addition, Warren Reeve and Fess said that account receivables include all claims for money from other parties, including individuals, companies, or organizations.
To manage these claims efficiently, businesses can leverage accounts receivable automation software. This software automates the invoicing and payment collection processes, reducing manual effort and errors and ensuring timely payments.
The Characteristics of Account Receivable
To make you understand well, you can find out their characteristics. Here are the attributes of it:
Have a due date
The due date can be seen from the ages. Usually, the seller or company uses two types of account receivable age measurements: days and months. If the generations are in days, they must calculate the exact due date. Meanwhile, the ages in a month and the due date will be the same as the transaction date but in different months.
Have a maturity value
In this case, the maturity value is the total of the principal transaction value, coupled with the interest value that must be paid when entering the due date.
If the buyers make a transaction using the credit method, they not only pay a certain amount of the value of the item that has been purchased, but they also have to pay the interest.
This is because the buyer asks for extra time from the seller or company to pay for the item purchased.
Having an interest applies
Buyers who make transactions on credit will create accounts receivable. Later, this will also result in interest. The buyer will pay the interest due to an extended repayment time. In addition, interest is compensation for the seller or company for the repayment time of the credit that the buyer made.
The Classification of Account Receivable
Accounts receivable can be classified into two categories such as trade receivable and non-trades receivable. Here is the explanation of each class:
Trade receivable
Trade receivable is a type that makes an open account, not makes it as a guarantor. This category usually has 30 to 90 days of repayment time—examples of this category include accounts and notes receivable.
Non-trade receivable
Non-trade receivables can come from various transactions, such as company branch down payment, interest and dividends, employee and staff receivables, deposits to cover losses, and deposits as collateral for transactions or service payments.
The Types of Accounts Receivable
Here are the types of accounts receivable, along with their explanations:
Account receivable
Account receivable is the number of credit purchases from customers or buyers. People also know this as trade receivables. The repayment time will range from 30 to 60 days.
Notes receivable
This type is a formal letter issued as a form of debt measurement. Usually, notes receivable have 60 to 90 days of the repayment time. If the buyer requests an extended repayment period, the buyer will be required to pay the interest.
Other receivable
The other receivables are more broadly defined, such as salary receivable, interest receivable, tax restitution, and employee down payment. Because they do not come from company operational activities, they can be classified in separate balance sheet sections.
Also read: Liquidity Is: Know the Benefits and How to Calculate Them
Conclusion
Account receivable is a billing form that the seller or company proposes to the buyer who has been in debt. It has several characteristics, one of which is having a maturity date. Also, there are several types of accounts receivable, from notes receivable to others.
HashMicro, a leading ERP software vendor in Singapore, provides solutions for your company to operate its business automatically, ranging from accounting systems to competency management systems.
Feel free to contact us to get the best offer and free demos.
