Accounts Receivable Definition: Tracking the Money You’re Owed

Here’s a basic accounts receivable definition: it’s the business function that deals with tracking and collecting all the money your company is owed. Ever sold a product or provided a service for which you weren’t paid in full at the time of the transaction? That’s accounts receivable.

Strictly speaking, any product or service for which you invoice a client would match our accounts receivable definition. This function sounds simple, but don’t underestimate it; accounts receivable offers ample opportunities for improved performance and enhanced cash flow.

Some background on our accounts receivable definition

Let’s define accounts receivable in a little more detail. It encompasses all the processes and activities that take place between the creation of an invoice for goods or services sold, and the collection of the funds from that invoice. But it’s difficult to define accounts receivable without acknowledging the dependence upon and relationship with customer order management on the front end, fulfillment or delivery services, and accounting, collections, and cash management on the back end. And don’t forget customer relationship management, which oversees all interactions with customers.

Accounts Receivable Overview

Accounts receivable involves managing the customer credit outstanding between billing and collection. In a perfect world, the customer would pay their invoices on time and in full subject to the terms and conditions of the sale. Even then, companies would need to track open balances and project cash receipts and cash flow as part of diligent financial management. But in the real world where we all do business, it’s even more important to keep a close eye on open receivables.

What we’ve described is just what falls under our most basic accounts receivable definition. A full-function Accounts Receivable application like the one found in Acumatica Financial Management will far exceed basic bookkeeping with additional functions that help you track and manage this important asset in your business. Above all, your solution should help enhance your cash flow so that your business can thrive.

Enhancing cash flow

Any accounts receivable definition nowadays, in terms of application functions and capabilities, should focus on cash flow. Cash flow is the lifeblood of your company. Any company that doesn’t manage receivables carefully won’t be able to pay their bills or invest in growing their company. In other words, they’re on their way to going out of business.

Without a good accounts receivable system, you’ll never know which customers are paying on time and which aren’t. This will not only hurt your cash flow, but also mask problems with your other business processes and systems. Customers may not be paying because the invoices you send out are often incorrect or late. In other cases, perhaps your company delivered the wrong product, or provided inadequate service. By following up on your customers who are 30 days or more overdue, your company can work on solving issues like these before they get worse and affect more customers.

Acumatica not only provides an Accounts Receivable function for single purchases, but also works with sophisticated billing, such as recurring revenue, and deferred revenue. As a result, you can take proactive steps to improve your cash flow and keep it healthy as your company grows.

Accounts Receivable Definition

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