Management of accounts receivable
A company or organization that provides goods and services to customers. In most commercial entities, this is usually done by generating invoices and mailing or delivering them electronically to customers, who must pay the invoices within a set time frame called credit or payment term.
An example of a common payment method is Net30, which means to pay the invoice amount within 30 days from the date of invoice issuance. Other common payment methods include 45 pounds. Net60, but it can actually be any time period agreed by suppliers and customers.
Although the registration of accounts receivable is completed through simple accounting transactions, the process of maintaining and collecting the balance of accounts receivable subsidiary accounts may be a full-time job. Depending on the actual industry, the payment of accounts receivable can be received within 10-15 days after the due date. These types of payment methods are sometimes determined by industry standards, company policies or the financial situation of customers.
On the company's balance sheet, accounts receivable are the amount that customers owe the company. Sometimes called accounts receivable, they are classified as current assets. To record journal entries for credit sales, accounts receivable must be debited and income accounts credited. When the customer pays off the account, he debits the cash in the journal entry and credits the accounts receivable. The ending balance of accounts receivable in the trial balance is always debit.
Business organizations that have become too big to perform these tasks manually (or small organizations that can but are unwilling to perform these tasks manually) will usually use accounting software on computers to perform this task.
Related accounting issues include the confirmation, valuation and disposal of accounts receivable.
The accounts receivable department uses the sales ledger.
Other types of accounting transactions include accounts payable, payroll and trial balance.
Since not all customers' debts will be recovered, enterprises usually record bad debt reserves and deduct them from the total accounts receivable. When the accounts receivable are not paid, some companies hand them over to third-party collection agencies or collection lawyers, who will try to recover the debts by negotiating payment plans, settlement quotations or legal actions. The outstanding advance payment is part of the accounts receivable: if a company gets an order from its customers, the payment terms of the advance payment have been agreed. This part of accounts receivable is not reflected in accounts receivable because there are no bills that require advance payment for many times. Ideally, since advance payment is a mutually agreed term, it is the responsibility of the accounting department to regularly take out statements showing accounts receivable in advance and provide them to sales and sales. Marketing with advance payment. Payment of accounts receivable can be protected by letter of credit or trade credit insurance.
Companies can use accounts receivable as collateral when obtaining loans (asset-based loans) or sell accounts receivable through factoring (financing). Accounts receivable pools or portfolios can be sold in the capital market through securitization.
[Edit] Bookkeeping of Accounts Receivable
The company has two methods to measure the net value of accounts receivable, that is, subtracting the balance of allowance account from accounts receivable. The first method is the allowance method, which establishes an asset hedging account, bad debt reserve, or more simply, allowance as an offset of accounts receivable. Allowance is an asset that offsets accounts receivable to get the net accounts receivable in the balance sheet. The amount of allowance can be calculated in two ways; Through the analysis based on sales method and the analysis based on accounts receivable method. It is necessary for assets to offset accounts receivable to comply with the matching principle of accounting, which requires accrual-based companies to match all income and expenses with the period when expenses occur and credit them to the allowance asset account. Once a specific account is determined to be irrecoverable, it is necessary to debit the bad debt reserve account and credit the relevant accounts receivable account to cancel the account from the company's books.
The second method is called direct write-off method, which is simpler than allowance method, and accounts receivable can be reduced to its net realizable value with only a simple entry. Accounting entries include debiting the bad debt loss account and crediting the corresponding accounts receivable.
For the purpose of tax declaration, the direct cancellation method must be used. However, for the purpose of financial reporting, it is necessary to use the allowance method, because it is a basic concept of income and related expenses-accounting in a period, which is called the matching principle.
Accounts receivable (also known as accounts receivable) refers to the creditor's rights arising from the sale of goods or the provision of services to customers, and the creditor's rights have not yet accepted any form of written commitment.
This course focuses on customers. If it is not a customer, it is also applicable without this course.
Factoring is a word that is often misused as a synonym for accounts receivable financing. Bill discount is a financial transaction, through which an enterprise sells its accounts receivable (i.e. invoices) at a discount price. Factoring is different from bank loans in three main aspects. First of all, the focus is on the value of accounts receivable, not the reputation of the company. Secondly, factoring is not a loan, but the purchase of assets (receivables). Finally, bank loans involve two parties, while factoring involves three parties.
OBS: In Europe, the term factoring usually refers to accounts receivable financing. The correct statement of this article is: American factoring business.
The three parties directly involved are: the seller, the debtor and the factor. The second party debtor owes the seller money (usually completed work or goods sold). Then, the seller sells one or more invoices at a discount to a third party, that is, a professional financial institution (also known as a bill discounter) to get cash. Then, the debtor pays the full amount of the invoice directly to the factor.
reason
A company sells invoices, even at a discount to the face value, because it believes that it is better to use these revenues to support its own growth than to effectively act as a "customer bank". In other words, it thinks that the return of income will exceed the income of accounts receivable.
Differences with bank loans
The factor provides funds, even if the bank does not do so, because the factor first pays attention to the debtor's reputation, and the debtor is the party obligated to pay the invoice for the goods or services delivered by the seller. In contrast, the fundamental focus of bank lending relationship is the reputation of small companies, not the reputation of customers. Although bank loans provide funds to small companies at a lower cost than factoring, the key terms and conditions of small companies' operation are quite different. The bank relationship provides more limited funds, and there is no bundled service provided by the factor.
From the perspective of the comprehensive cost and availability of capital and services, factoring has created wealth for some but not all small enterprises. For small businesses, their choice is to slow down growth or use external funds outside banks. When choosing to use external funds other than banks, fast-growing companies are faced with the choice of finding angel investors (that is, equity) or reducing the cost of selling invoices to finance their growth. The latter is also easier to obtain, and can be obtained within a week or two, while it usually takes more than six months to obtain funds from angel investment. When companies seek angel investors, factoring is also used as transitional financing, and combined with angel financing to provide lower average capital cost than single equity financing. Enterprises can also combine angel/venture capital, factoring and bank credit line to further reduce their total capital cost. In this respect, they can follow the example of larger companies.
Like any technology, decomposition solves some problems, but not all. Enterprises with small difference between sales revenue and sales cost should limit the use of factoring business to sales above their breakeven sales level, in which revenue minus direct sales cost plus factoring cost is positive.
Although factoring is an attractive alternative for small innovative and fast-growing companies to raise equity, the same financial technology can also be used to reverse a company with good fundamentals, whose management has suffered a perfect storm or made major business mistakes, making it impossible for the company to operate under the constraints of bank credit terms and conditions (i.e. contracts). The value of using factoring for this purpose is that it provides management time to implement the changes needed to turn the business around. The company pays for the option that the owner controls the future. The relationship between factoring and predicament explains half the reasons why it is called "last resort" financing. However, when there is only a moderate price difference between sales revenue and cost, it is not advisable to use this technology for turnover. In this case, the turnaro fund usually cannot create wealth for the owner.
Accounts receivable factoring means that an enterprise sells accounts receivable to a third party (the factor) at a certain discount in order to obtain the corresponding financing funds, so as to obtain cash as soon as possible.
Abstract: Accounts receivable are the money that an enterprise should collect from the purchasing unit or the employing unit for selling goods or products and providing services. Under the condition of market economy, it is an inevitable commercial behavior to use one's own reputation to exert labor benefits, which can be used as the main means for enterprises to expand their business and increase their market share. However, due to the influence of market economy system, project management and engineering construction, accounts receivable have increased rapidly year by year, which makes it difficult for enterprises to turn over funds. Those difficult circumstances even prevent employees from getting their full salary. This paper introduces some methods to reduce accounts receivable by analyzing the causes, advantages and disadvantages of accounts receivable.
Keywords: accounts receivable; ; Engineering construction; ; Contract management contract management
Abstract: Accounts receivable are the money that an enterprise should collect from a purchasing unit or a labor service unit when selling goods, products and providing labor services. Using one's own commercial credit is an inevitable commercial behavior under the market economy. Giving services first can enable enterprises to undertake more business and expand market share, which is a necessary means for enterprises to increase market share. However, in recent years, due to various reasons in the market economy system, project management and construction process, accounts receivable have expanded rapidly and increased year by year, which makes it difficult for enterprises to cash in and even pay wages normally. This paper analyzes the causes, advantages and disadvantages of accounts receivable, and puts forward the ways to reduce accounts receivable.
Keywords: accounts receivable; Engineering construction; contract management
http://en.wikipedia.org/wiki/Factoring_%28finance%29