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What is Accounts Receivable?

Many companies have an accounts receivable department to send bills and process payments.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 18 August 2014
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One of the basics of operating a business is having a means for keeping up with the money that is owed by clients as well as maintaining an accurate record of money received from clients that is to be applied to the amounts they currently owe. Money owed is known as accounts receivable. Most companies have a department dedicated to this area, and it is responsible for creating and sending bills, receiving and processing payments, and tracking both what money is on hand and what is still due.

The basic purpose of accounting is to ensure that any functioning entity has a concise picture of what is happening financially at any given time. An accounts receivable department contributes to the accuracy in part by billing customers for services or goods rendered. Typically, it is this department that keeps up with the billing information and customized billing needs of the client.

A large customer, for example, may receive a percentage discount on monthly goods or services it purchases, based on the volume of business conducted with the company. The accounts receivable staff would maintain that discount information as part of that customer’s billing profile, ensuring that all invoices to that client reflect the proper discount. Often, this department has a great deal of input on the look of the invoice, what information is included, and how the information is organized.

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Along with creating and distributing invoices to customers, this department is often responsible for receiving payments on those invoices and making sure the money is applied correctly. While some departments tend to post a payment to a customer and apply it to the oldest outstanding invoice, it is more common for a payment to be applied to a specific invoice, even if it is not the oldest outstanding invoice for that client. This allows staff members to identify aging on older invoices and work with the client to resolve any issues that may be preventing the payment of invoices that are older than the standard terms of payment.

Accounts receivable also works closely with the accounts payable arm of the accounting process. Just as clients are expected to pay for goods and services rendered, so the company is expected to pay outstanding invoices to their vendors in a timely manner. It's important that information about the amount of usable revenue is on hand before payments are made. With that data available, the accounts payable department is able to schedule and make payments on behalf of the company.

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Discuss this Article

anon109991
Post 15

very short and simple to understand.

anon107061
Post 14

it is very useful. A very good explanation on the accounts receivable topic. Thanks.

anon103016
Post 13

it is very useful. thank you so much.

anon94331
Post 12

can any one tell me accounts related interview questions?

anon90187
Post 11

could you please explain about what is the difference between accounts payable, receivable and bills payable and receivable?

anon83208
Post 10

could you please explain accounts receivable more easily? Thanks.

anon82537
Post 9

easy to understand. thank you for answering my questions regarding this topic.

anon76740
Post 8

a very good explanation on accounts receivable topic. thank you very much.

anon67083
Post 6

A very good explanation on Accounts Receivables topic. Thank you. asheesh

anon61868
Post 5

Thanks for the explanation. Very simple and straight to the point.

anon46114
Post 4

very simple and inforamative. Thank you.

anon42282
Post 3

very simply and eloquently put. thanks!

anon36142
Post 2

A very good explanation on Accounts Receivables topic. Thank you.

mrkev25
Post 1

this is by far the best explanation for accounts receivable i have ever read in my life! kudos!

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