Accounts Receivable – How Do I Manage?Download Now: FREE GST 2023 GuidebookDownload Now: FREE Employment Pass ChecklistDownload Now: Free Incorporation Checklist
Many business owners in Singapore don’t know that they can use accounts receivable to sell their goods to customers. In this short guide, we’ll explain the technicalities of accounts receivable so that you understand how to manage your accounts receivable and can decide whether using them is right for your business.
What are Accounts Receivable?
When businesses sell their products or services, they generally collect the proceeds of the sale at the time of the sale. However, sometimes they find it necessary to sell on credit.
Accounts receivable is the dollar amount of credit sales that a business makes in a given period and is listed on the balance sheet as a current asset. When you make a credit sale, you give the customer an invoice and collect the cash at a later time. Hence, accounts receivable represents the amount that customers owe you for products that they’ve already received.
What is the Main Advantage of Accounts Receivable?
The key benefit of accounts receivable is that it allows businesses to sell to customers who might not have the money to pay at the point of sale but will have it 15, 30, or even 60 days after the sale.
What is the Difference between Accounts Receivable and Accounts Payable?
Accounts receivable is the opposite of accounts payable. While receivables represent the amount that customers owe you, accounts payable is the money that you owe suppliers for goods and services that you’ve already received. Accounts payable is classified as a short-term debt (or current liability) on the balance sheet.
What are Some Tips for Improving My Accounts Receivable?
Firstly, it’s important to manage and improve your accounts receivable because, at the end of the day, there’s no point in making a lot of sales if you can’t receive the fruits of your labour. That is, while it might look nice to book all those sales as revenue on your income statement, if you’re not receiving cash for them, it becomes increasingly difficult to pay your employees and outstanding bills to suppliers. Nevertheless, here are a few tips for turning your receivables into cash:
- Make sure that you have a formal, written policy for collecting accounts receivable and, most importantly, that you enforce this policy. For example, you could email customers who are more than 30 days late on an invoice and call those who are over 60 days late. You could also charge late fees after a specific number of days and, worst-case scenario, send the invoice to a collection's agency or an attorney.
- Offer your clients a discount (ex: 5%-10%) for paying their invoices early. Even though you’ll lose a bit of money by offering a discount, it’s often well worth it to avoid the hassle of going after a customer who is overdue on an invoice. Moreover, you’ll collect cash much faster this way.
- Automating the invoicing process and using invoicing software makes it easier to keep track of current and overdue invoices. It also reduces the risk of making errors on invoices and allows you to issue invoices faster and to more customers.
- Lastly, make it easy for customers to pay their invoices by providing online payment options, payment via text message, and other such methods. This follows from the previous point and emphasises the importance of using invoicing automation and software.
Sprout with Us!
Accounts receivable give businesses in Singapore another way to sell their products to customers. However, there are advantages as well as disadvantages to using this method, which means that you need to assess your situation to see if it’s right for your business.
Sprout Asia offers budget-friendly accounting services where you can receive professional help to manage your financial statements efficiently. Especially in cases where you are faced with fluctuating accounts receivable levels, it may be beneficial to receive some expert help to keep track and offer advice to improve your sales revenue in a shorter period of time. Feel free to contact us for more information, we’ll respond within 24 hours.