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What Does an Accounts Receivable Department Do?

Osmand Vitez
Osmand Vitez

Accounts receivable is a concept where a business makes short-term loans to their clients. For example, a company sells goods or services on credit, forcing the accounts receivable department to maintain records on who owes the company money and when the customers should pay the bills. Other tasks may also exist in this department, such as reconciling customer accounts, balancing accounts receivable parent accounts, and creating aging reports to determine which customers are far behind in making payments in open accounts. Smaller companies may not have an actual department for accounts receivable; instead, a single individual handles these tasks. This department is among the most important in accounting offices as they partly control a company’s cash flow.

Offering short-term credit accounts to customers is one way a company can induce more sales to those who do not have available cash. A company may use its accounts receivable department to perform minor credit checks on customers seeking trade accounts. This can involve checking records with other vendors who have offered potential customers trade credit accounts. This historical record may indicate how well the potential customer will pay its bills. The accounts receivable department may not make the final decision on credit accounts, leaving this responsibility to the controller.

Offering short-term credit accounts to customers is one way a company can induce more sales to those who do not have available cash.
Offering short-term credit accounts to customers is one way a company can induce more sales to those who do not have available cash.

The daily work in an accounts receivable department is typically repetitious, as are many different activities in an accounting department. Accountants sort through the mail each day and look for payments from customers. If any exist, the accountants stamp the date received on the payment and pull up the customer’s account in the company’s general ledger. A short reconciliation may be necessary to determine which open invoices the check covers in terms of payment. If the customer is paying off of a statement sent by the company, this reconciliation process may be easier as part of the work is already complete.

The accounts receivable department may send out notices to extremely late customers, requesting payment immediately.
The accounts receivable department may send out notices to extremely late customers, requesting payment immediately.

Once accountants receive cash from customers, reconcile the accounts receivable, and post payments, a larger reconciliation may be necessary. This may start with the creation of an aging report to determine which customers still owe money and how old the open accounts are. Notices may be sent to extremely late customers, requesting payment immediately to close out the open accounts receivable. The accounts receivable department is typically responsible for completing this activity on a monthly basis. Reconciliation for the parent accounts receivable account to the aging report may also be a monthly project.

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    • Offering short-term credit accounts to customers is one way a company can induce more sales to those who do not have available cash.
      By: pressmaster
      Offering short-term credit accounts to customers is one way a company can induce more sales to those who do not have available cash.
    • The accounts receivable department may send out notices to extremely late customers, requesting payment immediately.
      By: Pixsooz
      The accounts receivable department may send out notices to extremely late customers, requesting payment immediately.