Accounts receivable procedures are specifically for sales made on credit. What does ‘on credit’ mean? It means when you sell a service or item to a customer and are not paid immediately - you are extending credit to them. So these procedures do not apply to sales where you are paid immediately.
So, you’ve made a sale on credit. You’ve given the customer their sales invoice. Now what?
Well, you need to keep a note of when that invoice is going to be due for payment. When the due date arrives you need to check if it has been paid. If it hasn’t you need to start your accounts receivable collection procedures, but that’s another story. Here, we will focus on accounts receivable procedures such as:-
If you want to extend credit to a new customer you could get them to open an account.
Issue them with:-
Once you have approved their application you can allocate the customer with a special account number if you wish, but this isn’t necessary if you have only a few customers. Account numbers are helpful to businesses with hundreds of customers for easier identification.
This can include questions like:-
For this you can do a simple document detailing the terms and conditions relating to the sale of your products, including information like:-
This makes it plain to the customer what to expect and gives you good footing if you have to hand them over to a debt collector. Contact your lawyer for a suitable template. You can also purchase and download templates off the internet; just be sure you are using a reputable provider and one that is specific to the laws of your region.
This is the core of your accounts receivable procedures.
Below are the basic steps to follow from the time you give the customer their invoice:-
Manual Receivables System
*You could instead have one folder with two sections i) Unpaid Invoices, ii) Paid Invoices.
This is just one method. You can change it to suit your requirements, and indeed, design a whole different system, as long as what you do helps you keep a handle on those unpaid invoices.
If you are using bookkeeping software that has a receivables option it is easy to check what is due, because when you run a receivables report it will only list the invoices that have not been paid - as long as all the payments received have been entered into the program!
Therefore, you do not need to keep a separate receivables folder. You can simply place all invoices directly into the Sales Invoices folder because you will use the bookkeeping program for the accounts receivable procedures.
Many businesses will issue their customers with a Statement of their account. A statement of account is handy for two reasons:-
Statements are usually only issued once a month to include all invoices from the 1st to the 31st (or 30th) - so wait until the first day of the next month before preparing statements.
Below is an example of a Statement of Account. Also, go here for more information on this document.
As mentioned earlier, accounts receivable procedures are flexible and can be adjusted to fit what works for you. The important thing is that you have a system that allows you to quickly and efficiently answer your own question of ‘who owes me money?’.
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