How Accounts Receivable Work
Buyers, in rare occasions, do not have full cash to make their purchase especially if what your company sells is a big investment or service – like cars and more, and the most obvious move you’ll do would be to let them give you money in the near future.
This act may put you in a good light in the eyes’ of the public with your magnanimous and unselfish behavior but what not everyone may know is that this step also acts as an advantage for the company in the form of the accounts receivable.
For those people who becomes debtors of a company and have to recompense the company for the purchase they have made, they will receive information about the purchase and credit in every month that passes, in the form of bill statements or invoice.
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Aside from the purchase itself and the price of the product, the billing statement or the invoice will also give the customer a full view of their credit which includes shipping and taxes as well.
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Surely, this kind of knowledge isn’t as rare as you think it is as it can easily be searched through the internet and is even taught in the most basic Accounting classes.
Making the matter more complex and more intricate than the introduction, there are two methods on which accounts receivable could go in the financial book of the company: one of which is the accrual accounting and the other is the cash-basis type.
The two methods tackle the process on how the money flows into the cash books and out, which means to say that it helps in manipulating the business.
Continue reading on this article and learn more about how cash-basis works, the most commonly used accounting method by companies. Companies often makes use of this method as a way of relieving themselves from additional tax payments which also goes true for their customers, which is why this technique is often used during the last quarter. This method can be explained easier through an example: think about a buyer who purchases a product from your company during the last quarter of the year, then he or she pays for it on January of the next year. Through this technique, the buyer and the seller wouldn’t have to settle the payment of tax for that particular transaction not until the end of the year when it was finally placed on the financial book.
It is true that the techniques and methods for Accounts Receivable management isn’t limited to the cash-basis and accrual accounting, but the former’s topnotch effect is something that any company wouldn’t want to miss out on as it can be very convenient and helpful for both the company and the seller.