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Banking and Finance

What is accounts receivable: management, write-off and sale

The essence of receivables

At any enterprise, there are payables and receivables. If everything is more or less clear with creditors, then the second option of obligations raises many questions for not only beginning entrepreneurs.

These obligations can be considered in two meanings. On the one hand, “accounts receivable” is the loss of the company, but on the other, is the future gain. It all depends on the correct financial management policy of the head and the conscientiousness of the recipients of goods and services. A competent approach to existing receivables is the key to the success of your business.

Short and long term debt

Accounts receivable to the company may have a different duration. If your customers delay payment for up to 12 months, then this debt is considered short-term. Its presence is present in 100% of firms.

Most often, it does not exceed several months (3-6). This is a normal occurrence, since you can provide the counterparty with a deferred payment, or the transfer of money is delayed due to holidays, features of the bank through which the payment passed.

If you have shipped the goods, and over the past year you have not seen the money for it, there are long-term obligations. They give reason to doubt the continued solvency of the buyer company. In order not to miss this moment and get your money, you need to immediately choose reliable business partners.

The long term return of receivables adversely affects the entire enterprise. If you have a large amount of receivables from several buyers, then things are really bad. This means that the funds in circulation are becoming less.

If there comes a case when you urgently need funds, you will have to apply for a loan, which will make the situation of the company even worse.

Past due liability

When you conclude an agreement with future partners, you set an acceptable payment term for the delivered services. Under the circumstances, the buyer either transfers the money on time or does not pay it at all.

The first case is an ideal option when the terms of the agreement are not violated. TD Bank Routing Number The buyer receives the goods, and you are the money that you use for the enterprise.

When payment is not received on time, overdue receivables arise. Its presence makes your company more vulnerable, you are limited in funds and must support the company with the remaining money.

To allow overdue debts is not recommended for both parties to the transaction. It negatively affects the buyer and the supplier. Its result is losses for your enterprise and loss of financial gain.

Doubt or hopelessness

If the debtor company is delayed with payment of obligations, you must find out for yourself whether you can recover your money from it or not. There is a concept of doubtful debt, which is expressed in the hope of receiving funds from the buyer. This is expressed in the fact that he has no signs of bankruptcy , and for some reason does not want to repay your debt.

Bad debt to the company lies in the fact that the company turns off its activities in the market and declares himself bankrupt. Then you will not be able to return your goods or money. In practice, such cases are rare and only with those leaders who could not implement an effective financial policy.

Doubts about the payment of funds by the debtor appear during lengthy negotiations, as a result of which he evades payment. In this case, re-delivery of goods to his enterprise is not allowed in order to avoid the formation of a larger debt.

Before concluding an agreement with a new company, carefully study its activity in the market. If she has experience with unpaid obligations, then you should not ship. It is better to immediately prevent such cases than to then collect the receivables.

Object of Obligation

Accounts payable are directed to various objects of activity of enterprises.

Common directions are debts for:

  • Supply of products, services or work;
  • Bills;
  • Budget funds;
  • Advances;
  • Reporting amounts (for example, giving money to an employee for the purchase of stationery);
  • Loans for employees.

Thus, the debt can be not only outside the enterprise, but also inside it. In addition, a common form of obligations between the branches of one company.

The ratio of internal and external debt of debtors should be such that the company can function normally. The most acceptable form of debt is considered internal. It is much smaller than external volumes and, most likely, will be returned ahead of schedule.

For example, if you, as a manager, decide to lend your own employees to your company at a low interest rate, then you can have no doubt that such payments will be made by employees. Each of them is interested in further work, in addition, contracts that limit the possibility of an early dismissal, allows you to keep them until the end of payments. If you trust the amount to the accountable, you should be aware of the possible consequences.

Why did the receivables arise

Features of the functioning of firms at some stage lead to the formation of obligations of debtors.

This established practice has some common causes:

  • Inaccurate wording in the contracts between the supplier and the debtor;
  • Dishonesty of partners;
  • Payment delay;
  • Credit for the goods.

The supplier may himself be to blame for the formation of receivables. The head should not allow phrases in the contract, which can be understood in two ways. It is necessary to specify clear terms for the return of receivables so that the buyer does not have a single question. Compilation of agreements is usually carried out by competent and experienced lawyers who know all the subtleties of the field of law.

The fact of dishonesty of the parties to the contract may not go around even the largest and most famous company. Dishonest managers who cannot cope with their work responsibilities always exist and bring a lot of trouble to other firms.

Deferral or credit are normal conditions for relations between the parties. Accounts receivable in this case are repaid in accordance with the established deadlines. Provide these payment options only to trusted businesses.

What may affect receivables

There are various factors within the company and beyond, which in one way or another may affect the nature of the repayment of the debt or the solvency of the debtor.

  • Internal sources include:
  • Ineffective financial management policy;
  • Inappropriate pricing of goods;
  • Untimely impact on the debtor.
  • As an external influence, you can consider:
  • Inflation rate;
  • The ratio of exchange rates;
  • The crisis state of the economy.

If your contract does not provide for measures to influence a malicious defaulter, then the return of the debt may not be carried out at all. This important feature is made a separate clause of the agreement.

Inflation can make your services more expensive. The increase in prices stipulated by the contract may lead the other side of the agreement to confusion and to a delay in payment. A crisis in the economy also has a strong impact on already concluded contract terms. Depending on the current position of the debtor’s company in the market, payment deadlines may not be respected.

Who controls the cash flows of debtors

Any organization is interested in fruitful and effective cooperation with its counterparties. In order for this process to proceed at the proper level, several departments are created within the company that control the process of the activity of debtors.

Previously, this function belonged only to the financial manager. However, enterprises are growing, they are concluding an increasing number of contracts, each of which is becoming more difficult to control.

The internal composition of the company, which affects the receivables indirectly or directly:

  • The highest link is the leader;
  • Commercial department (persons concluding agreements with partners);
  • Sales managers;
  • Financial sector (head of the department for work with finances and his subordinates);
  • Lawyers;

Security Service.

The main direction of work for all departments is set by the head. Representatives of commerce are looking for the most profitable partners who do not have significant debts. Lawyers competently draw up contracts or study the agreements proposed by opponents.

Security service is available only in large companies. Its objectives are to protect the interests of the company from unscrupulous individuals and scammers by carefully examining the client base.

Management tasks

Before starting any activity with counterparties, the enterprise must set itself the tasks that should be solved in the course of cooperation.

Such tasks in the management of debtor obligations include:

  1. Studying the functioning of the future debtor (he must have a good reputation and no debts);
  2. Caring for the upcoming drafting of the contract by a competent lawyer;
  3. Fundraising for financing emerging obligations;
  4. Monitoring the dynamics of receivables;
  5. The adoption of ways to repay debts;
  6. Work with debtors in the form of claims;
  7. The ability to establish itself at the state level for free support.

What do the management functions contain?

Those employees who are involved in accounting and distribution of funds of debtors should be able to:

Use management objectives for the benefit of the organization;

  • Ensure the fulfillment of tasks 100%;
  • Develop motivating offers for debtors;
  • Monitor the current situation;
  • Analyze the state of the company and transmit the report to the head;
  • Plan the activities of the organization (determine the mission, strategy, decision policy);
  • To appoint subordinate workers, each of whom will be engaged in separate areas of receivables;
  • Compare the current status of the company with the planned.

The instigator of any new action should be precisely the leader. By appointing competent specialists who are versed in the intricacies of debtor debt management, it increases the chances of an early development of the company. Each skill is useful for a positive customer experience.

Each function of receivables management is necessary for daily execution, if you wish prosperity to your company. Management policy determines the future prospects for the development of the company at a high level.

What decisions are made for management purposes?

Managing the flow of capital from debtors, the company must make effective decisions aimed at various aspects of the development of receivables.

Decisions are made on the following issues:

  • Taking into account the indications of obligations for each specific date;
  • An analysis of all actions prior to the occurrence of overdue receivables;
  • Taking note of the latest developments in the field of receivables management (every year new strategies developed by market gurus appear and aimed at increasing the turnover ratio);

Regulation and control of debtors’ debts on current date.

We provide liquidity of receivables

For the company to develop correctly and quickly, it is necessary to use all available assets in the turnover. This condition also applies to receivables.

The very existence of obligations of debtors with a competent approach allows the company to increase its own resources and carry out its activities more efficiently. US Bank Routing Number This means that having received funds from the next debtor, you must put them back into circulation. The debt that settled in the hands of the debtor for a long time will have a bad effect on your organization.

In order not to suffer the liquidity of receivables, it is best not to allow its delay or a long return. The faster the money comes to the organization from the debtor, the higher will be the turnover of assets and income of the company.

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