Accounts Receivable Process in Bookkeeping

Accounts receivable is the amount of debt owed to the company from legal entities or individuals as a result of economic relations with them. Usually, debts are generated from sales on credit.

Objects of civil rights include money and securities, other property, including property rights; works and services; information; results of intellectual activity, including exclusive rights to them (intellectual property); intangible benefits.

Therefore, the right to receive accounts receivable is a property right, and the accounts receivable itself is part of the organization’s property.

Note that today, almost no business entity exists without accounts receivable, since simple objective reasons explain its formation and existence.

What is the accounts receivable process?

Accounts payable process is an important part of work in any organization.

Each company has a provision for collecting accounts receivable. To do this, the bookkeeper may use the accounts payable process flow chart. When the company is unable to invest the necessary funds in accounts receivable, it is necessary to make adjustments to the planned revenue and profit received from the sale of debt.

One of the new methods of debt management is the refinancing of accounts receivable, the main forms of which are factoring, forfeiting, and bill accounting.

Factoring is of particular interest to the company as a tool that covers a significant number of supplier risks. In addition, the period of capital turnover increases; the company optimizes the financial structure for a relatively small percentage and does not incur additional costs for working with problematic customers.

Accounts receivable process: Main steps 

It should be noted at once that there is no separate legislative or other normative legal act that would regulate the procedure for collecting receivables. Therefore, based on their own practice or the business practice of their contractors or business partners, many organizations develop their own local regulations connected with accounts payable process flow. Their purpose is to provide methodological support for the process of receivable repayment.

The analysis of business practices in conjunction with the analysis of current legislation and existing judicial practice allows us to form a general algorithm for the repayment of existing accounts receivable in the organization. Often, accounts payable process automation is used. 

Conditionally, work with accounts payable process in SAP can be divided into the administration of accounts receivable and activities aimed at its liquidation.

Administration of accounts receivable includes:

  • establishing accounts receivable;
  • analysis of established accounts receivable;
  • forming a reserve for doubtful debts;
  • write-off of non-recoverable debt.

Activities aimed at the liquidation of accounts receivable, in turn, can be divided into two groups: activities related to the out-of-court procedure for the liquidation of accounts receivable, and activities related to the judicial procedure for the liquidation of accounts receivable.The general rules for establishing and recording accounts receivable for settlements with suppliers, buyers and contractors and creating reserves for doubtful debts are fixed in the accounting policy of the organization. Now, you know how to respond to “What is the accounts payable process?”.

Accounts Receivable Process in Bookkeeping

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