From an accounting point of view, account receivable asset represents company demands from external parties which are expected to be resolved by making payments according to the appropriate amount of cash. The characteristics of account receivable asset include the maturity value, due date, and interest.
The intense competition in the business world forces the company to provide maximum service to its customers. Cash payments offered by a company are extremely impossible, because competitors will facilitate payment terms.
Therefore, sales and payment on credit are methods used by business actors to face the intense competition that exists. By making sales on credit, accounts receivable will appear and with the emergence of these receivables it means that the company must set aside an amount of funds to be invested in these receivables.
Types of Accounts Receivable
Based on the types, there are 3 types of account receivable asset that must be known in business activities, such as:
This receivable is in the form of credit purchased through a customer from the buying and selling process in the form of goods or services. Accounts Receivable billing period is approximately 1 to 2 months. When viewed in terms of numbers, this type is the largest.
As the name implies, this receivable has a physical form in the form of a formal letter. This formal letter is issued in an attempt to measure the amount of debt. In contrast to trade receivables, notes receivable are targeted with a repayment period of 2 to 3 months. The repayment period can be extended if the party owed is willing to pay interest.
The examples of other account receivable asset are salary receivables, interest receivables, tax refunds, and employee advances. Because these receivables are broad in nature, the records can be reported separately in the balance sheet. If accounts receivable cannot be collected on time, the sales process will also be disrupted. The following are ways to manage receivables including:
- Standard handling or management of accounts receivable or customer accounts receivable must be made, this is to ensure the process of controlling accounts receivable so that it can be on time. This billing schedule is usually in the form of an invoice list, which contains customer data, the date of collection or sale and due date of sales invoices and the value of receivables that must be paid by the customer.
- Take control of accounts receivable by screening customers and setting a number of terms and administrations related to accounts receivable or credit terms.
- Perform calculations on trade receivables turnover to determine efficiency in collecting receivables that will be carried out. Accounts receivable turnover is the period of time when the funds receivable are tied. For example, the collection of receivables that is being carried out is longer than the payment limit that must be done, the consumer must find a way to calculate the turnover of the receivables.
In reality, there are always any customers who can’t pay your invoice in time. So, here are some things you can do to encourage your customers to pay on time.
Make a clear loan policy
By loosening the rules you have created for extending credit to your customers (also called credit policies), usually causes more trouble than profits and can lead your company to the edge of the abyss.
It would be better, make clear guidelines on when you can and cannot extend credit to your customers, and don’t hesitate to do so, even if it means you have to turn down several people in the short term.
The company can request a deposit in advance for large orders, and provide interest for late payments, which is usually reserved for new customers. When new customers register and see these rules. Usually they’ll understand that you are serious about paying.
Give Them Financial Incentives
One way to get people to pay you more quickly is by giving them a profit. Offer them a 5% discount on paying the bill if it pays within 15 days. This causes payments to be paid faster and reduces customer costs as well.
Make a Call and Reminders Continuously
Calling a customer and reminding them of a late payment is enough to get them to pay. Don’t forget to send an email as a reminder with the recurrence interval. Let’s say, after 15, 30, 45 and 60 days which can remind your customer.
If you’ve done all of the above and still haven’t gotten your payment. The following are things that must be done when consumers do not make payments according to the agreement that has occurred:
Warn your customer by postponing the goods delivery
Many companies will stop shipping goods to their customers if they have unpaid bills that are more than 120, 90, or even 60 days overdue. By doing this, it can give a sign that you are very serious about paying, and it ensures that you will not be doing business with people who break a rule.
Convert Bills into Long-Term Loans
If you have good relationships with late-paying customers, you may consider converting their bills to long-term loans. In this situation, you can replace their bills in your book with loans with a proper rule between both of you.