The reason why business owners need to be able to understand what Accounts Receivable is, and how to read and Accounts Receivable aging summary, is so that they can use the information to be proactive in their business to collect the money that they are owed. Industry Canada says that half of all Canadian entrepreneurs fail in business, and out of those failed entrepreneurs, 29% say that the reason why they failed is that they ran out of money. By learning how to properly do collection calls, aided by their Accounts Receivable aging summary, entrepreneurs can ensure that they are being proactive to bring money into their business.
Accounts Receivable refers to the amounts owed to the business owner by the customers that have not paid yet. The Accounts Receivable aging summary is going to show business owners all of the customers that over the money, how much money they owe, and it will be organized by date. The reason why it is important that it is organized by date is that that can help an entrepreneur be proactive in contacting clients that have owed money for a longer period of time. Edmonton bookkeeping says that the longer an invoice is outstanding, the harder it is to collect the money, so a business owner should first ensure that they are contacting their clients on a regular basis as soon as they generate an invoice, and maintaining regular contact so that they minimize the number of invoices that are left past-due.
A business owner should understand that their Accounts Receivable is literally counted as an asset on the balance sheets of their financial statements. It is listed underneath cash and is considered money that a business owner owns. Many entrepreneurs believe that the only time it gets counted on their financial statements is when it comes to their business and this is not true. Because of that, business owners need to ensure that they are bringing the money that they are owed into their business efficiently.
By establishing a collection protocol early on, and communicating that with their customers can help a business owner not only ensure that they are reaching out to their clients often enough, but that their clients are aware of what the procedure is, so that they are not caught off guard. Many business owners have a thirty-day term on their invoices, and depending on the industry, it may slightly vary, but business owners should ensure that their clients know how much time they have to pay the invoice, and how the business owner will contact them if they miss paying it.
By understanding how to read their Accounts Receivable aging summary, Edmonton bookkeeping says that business owners can use that information to reach out clients that over the money. Also, ensuring that they are very clear what their payment terms are upfront, can help business owners ensure that the clients are aware of how long they are going to be expected to pay an invoice. This can help ensure that a business owner is being proactive in bringing the money that they are owed into their business on a regular basis.
Edmonton Bookkeeping | Understanding What Counts Will Is
As soon an entrepreneur generates the first invoice in their business, Edmonton bookkeeping says that they have also just generated their first accounts receivable. This refers to any amount that the customer owes a business owner and has not paid yet. There are many businesses that sell a product or service, and receive payment from their customer at a later date. Learning how to read their counts receivable aging summary, is extremely important to help an entrepreneur understand the finances of their business. This can help them not only collect the money that they are owed but also use the information to proactively grow their business as well.
When an entrepreneur is looking at their Accounts Receivable aging summary, they will see a list of all the customers that all the money as well as the date that the invoices have been generated. They also see a grand total at the bottom of their summary, which will show them how much money they have gone to outstanding in their business. Edmonton bookkeeping says that it is very important that entrepreneurs are looking at that, and understanding what it means if it is going up or going down.
A high Accounts Receivable amount could mean two things, depending on the dates of most of the invoices. If an entrepreneur sees that they have a high Accounts Receivable, the next thing they should look at is the dates of the invoices. If they are newer invoices, that means that a business owner has recently generated a lot of invoices for sales, and it could indicate that their marketing efforts have recently paid off. That should help an entrepreneur understand what marketing efforts have worked in their business, and what they need to keep doing or increase to grow their business.
On the other hand, Edmonton bookkeeping says that if a high Accounts Receivable, accompanied by many older invoices, could indicate that a business owner is facing a potential cash flow problem in their business. The reason is that if they have lots of older outstanding invoices, they may not be successful in collecting money from their clients. This should indicate first that they should change their collection methods, and work even harder to bring the money and that they are owed from their clients, as well as increase their marketing efforts so that they can bring new invoices in.
By understanding how to read their Accounts Receivable aging summary, and how to use that information proactively in their business, entrepreneurs cannot only avoid cash flow problems, but they can also use the information to help understand what marketing efforts are working, so they can continue to do that to continue to grow their business. By doing this, entrepreneurs are increasing their chances of succeeding in business.