Jun 22, 2021Benefits of Keeping a Close Eye on Accounts Receivable
Accounting is an essential department to any startup or small business. Tracking invoices, preparing taxes, and developing accounting processes are essential so brand’s not only follow the law but also stay profitable. Most small businesses recognize the value of accounting to one capacity or another, but not everyone knows the importance of tracking accounts receivable.
If your company does not keep track of accounts receivable, it could be losing money, resulting in long term consequences for your overall brand. The following article explains what accounts receivable means and why tracking it is so important to the overall health of a brand.
What is Accounts Receivable?
Essentially, accounts receivable means that some of your customers purchased products or services from your company, received those products or services, but have yet to actually pay for them. In layman's terms, accounts receivable means that some of your customers owe you money. Accounts receivable should be collected as soon as possible so that your company can be paid for the services or products it provided to customers. However, without properly tracking this process, it can be difficult to collect payments on time.
Why Your Company Should Pay Attention to Accounts Receivable
Tracking AR Provides Insight to How Much Cash Flow is Currently Unavailable
When accounts receivable is high, meaning your company is loaning out a lot of money to its clients, your company has less flexible cash flow. Essentially, by tying up money with your customers, you are losing out on money that could be put towards the following:
- Hiring additional staff
- Stocking inventory
- Updating company technology
- Taking care of company facilities
- Marketing products or services
- Developing new products
- Paying off debts
The list goes on and on. Having clients on AR is not necessarily a bad thing. However, by keeping tabs on your company’s accounts receivable, you at least have a good idea of how much money you are tying up. You can now hold your client’s responsible to their deadlines, so that you receive payments on time. Additionally, if for some reason, your company needs to re-prioritize cash flow, you are aware of how much your clients still owe you and when you can expect to receive those payments.
Tracking Cash Flow Allows for Standardization of Your Billing Process.
Without tracking accounts receivable, operating under a standardized billing process is hard to achieve. However, once you start tracking accounts receivable, you will have a better understanding of when your accounting team needs to send out bills. Therefore, tracking this metric increases the opportunity to standardize the billing process. For any small company hoping to see increased growth, standardizing a billing process and holding clients accountable to their payments is essential for growth.
Not tracking accounts receivable can lead to monetary consequences.
Without tracking accounts receivable, how does your company know how many clients owe money, when they are supposed to pay, and how much the company’s accounts receivable totals? This process is similar to accumulating credit card debt. The minute someone starts spending on a credit card without meeting the minimum payment, accumulated interest makes it increasingly difficult to get your credit card bill back down to normal. Likewise, the more clients that are on accounts receivable, the harder it will be to reign in all the payments owed.
If your company does not stay up with how many clients owe you money, it becomes easier to put more and more clients on accounts receivable. Before you know it, your company is short more money than expected. Avoid this slippery slope by staying on top of your accounts receivable.
Does Your Company Need Help Tracking Accounts Receivable?
Not every company has the in-house capability to track accounts receivable. That’s okay! At Nimbl, we empower entrepreneurs and small businesses to grow from the ground up. To do so we utilize Quickbooks, one of the industry-leading AR services. Additionally, we offer other advice and help along the way to ensure your AR processes are as succinct and well-functioning as possible.
If your company is in need of assistance with tracking accounts receivable, contact us! Nimbl offers access to qualified accountants, including CPAs. Our team is more than happy to assist your company with any or all of your accounting needs.