Accounts Receivable or commonly known as AR is common term which is part of the company in-house accountant task to manage and to receive payment on monetary value from their clients after providing goods and services to them which in turn will be accounted for on the company’s balance sheet.
For example, a manufacturer of a kitchen stove will have an accounts receivable which they will bill as invoices when the Kitchen stove is delivered to the restaurant owner who is their client. Depending on the agreement contractual terms, the restaurant owner will normally have 30 days make the payment to the manufacturer with effect on the day they received the stove.
Some of the companies especially in the marine sector will sell their products and services on credit terms but often incurred certain risk that the full amount of their account receivable may not be received in time. Which unless the company has deem and justified the credit worthiness of their customer to sell their product and services on credit terms.
Part of the accountant job is also to monitor and chase for payment from their client if the payment period has expired. This is easily done as there are many accounting software tools that can allow accountant to keep track of the payment records of their customers.
In events when the payment for the accounts receivable is overdue for too long due to reasons like the customers are non-contactable or disputing on the quality and other contractual terms of the quotation. Companies will have the legal right to engage a third party debt collection agency on their behalf to chase for payments and in exchange for the service fee or certain percentage of the amounts receivable successfully collected.
Thus it is important for the company to manage the accounts receivable properly as it relays as the main source of income for the company’s balance sheet.