Account Receivable Process: A Comprehensive Guide

When it comes to managing a company's finances, the account receivable process is a crucial component. It refers to the system through which a business tracks and manages its outstanding customer invoices. Let’s learn more about the account receivable process in this article of Viindoo.

The concept of the account receivable process

What is accounts receivable (AR)?

Accounts Receivable (AR) is a term used in accounting to refer to the outstanding balances owed to a business by its customers for goods or services that have been provided but not yet paid for. It represents the money that a company expects to receive from its customers in the future.

>>>> See more: Account Receivable Definition: Understand to Develop Management Strategies

What is the account receivable process?

The account receivable process, also known as the AR process, is a set of procedures and activities that a company performs to manage its outstanding customer balances and collect payments for goods or services that have been provided but not yet paid for. 

To manage the Accounts Receivable Process effectively, companies need to establish clear policies and procedures for generating invoices, tracking payments, and following up with customers who have overdue payments. Automation tools like invoicing software and payment reminder emails can also help streamline the process and improve its efficiency.

Overall, effective management of the Accounts Receivable Process is essential for maintaining good customer relationships and ensuring financial stability.

what is the account receivable process

What is the account receivable process?

Account Receivables Process Flow Chart

As above-mentioned, accounts receivable refers to the outstanding balance of money that a company is entitled to receive from its customers who have purchased goods or services on credit. The following steps comprise the full life cycle of the account receivable process:

Step 1: Sales Quotation

The first step in the Accounts Receivable process involves creating a sales quotation that outlines the products or services being offered, along with their price, payment terms, and delivery time. The supplier shares the quotation with the customer for review and acceptance.

Step 2: Sales Order

After the customer accepts the sales quotation, a sales order is generated to confirm the order's receipt. The sales order includes the product or service details, unit cost, delivery time, payment terms, and delivery address.

Step 3: Delivery

Once the sales order has been confirmed, the supplier delivers the ordered products or services to the customer. The delivery includes an invoice and delivery challans, which the customer verifies for accuracy.

Step 4: Invoice

After the delivery is complete, the supplier generates an invoice that summarizes the total amount owed by the customer. The invoice includes all the products and services received, and the supplier issues it to the customer for payment.

Step 5: Payment from Customer

The customer must pay the outstanding amount owed as per the payment terms mentioned in the invoice. The supplier may need to follow up with the customer to ensure payment is made on time.

Step 6: Reconciliation

The final step in the Accounts Receivable process involves reconciling the supplier's and customer's accounts. If there are any discrepancies, the supplier should perform vendor/customer-wise reconciliation to ensure accurate accounting.

account receivable process

Account Receivables Process Flow Chart

How to optimize account receivable process

The process of optimizing the accounts receivable cycle may seem daunting, but there are effective techniques and methods that can be used to improve the flow of AR. Here are five key activities that can help:

Accurately maintain buyer data

Keeping customer data up to date and accurate is crucial for improving the AR cycle. Incorrect information, such as an address, can result in invoices being sent to the wrong location, causing payment delays. Regularly audit customer accounts for unusual payment terms, credit limits, and other factors.

Clear past receivable dues quickly

Research has shown that the longer a supplier goes without collecting receivables, the less likely they are to collect them at all. It's important to stay on top of past dues and contact customers on the first day of late payment. Offer penalties and reminders before the due date to improve the AR process flow.

optimize account receivable process

Clear past receivable dues quickly to optimize account receivable process

Offer discounts for early payment

Providing discounts to customers can incentivize prompt payment. A common method is to offer a 2/10, net/30 discount, where customers receive a 2% discount if payment is made within 10 days, without taking payment days beyond 30. This can encourage clients to pay quickly and avoid delays.

Provide payment plans

Clients may reach outstanding due dates because they are unable to pay the full amount. Offering a payment plan can guide businesses towards improving their accounts receivable cycle and taking it to the next level.

account receivable plan

Provide payment plans to optimize account receivable process

Use tools for supporting

Businesses can streamline the invoicing process, track payments and manage customer data more effectively with the help of accounting system software. For example, accounts receivable management software can automatically generate invoices and reminders, monitor payment statuses, and provide real-time reports on the overall financial health of the business.

Viindoo account receivable process management software

Viindoo Accounting is a powerful software solution that can help businesses optimize their accounts receivable process. With Viindoo Accounting, companies can easily manage customer data and track payment status through aging reports. The software also enables businesses to set up automated reminders and penalties for late payments, which can improve the speed of collections.

account receivable process management software

Viindoo accounting offers several features that help businesses optimize their accounts receivable process, including:

  • Customer management: Viindoo's customer management module integrated allows businesses to maintain accurate customer data and track their transactions, including outstanding invoices and payment history.
  • Invoice creation and management: Viindoo enables businesses to create and manage invoices easily and quickly, reducing errors and ensuring timely payments.
  • Automated reminders: Viindoo's software can automatically send reminders to customers about overdue invoices, helping to reduce late payments and improve cash flow.
  • Payment processing: Viindoo's accounting system integrates with various payment processing platforms, allowing businesses to receive payments quickly and efficiently.
  • Reports and analytics: Viindoo provides detailed reports and analytics on accounts receivable, allowing businesses to track their performance and identify areas for improvement.

In conclusion, managing the account receivable process is an essential part of running a successful business. By following the steps outlined in this guide, you can ensure that your accounts receivable process is efficient and effective, and helps to keep your cash flow healthy. Please follow Viindoo's blog to read more similar interesting content!

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Account Receivable Process: A Comprehensive Guide
Viindoo Technology Joint Stock Company, Nguyễn Vân Anh 9 April, 2023

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