Accounts Receivable Process
1. Sales Order Processing: The process begins when a customer places an order for goods or services. The sales order is generated, detailing the products or services requested, quantities, prices, and terms of payment.
2. Invoicing: Once the goods are shipped or the services are provided, the business generates an invoice to bill the customer for the amount owed. The invoice includes information such as the customer’s name, billing address, invoice number, date, due date, items sold, quantities, prices, and total amount due.
3. Sending Invoices to Customers: The invoices are sent to the customers via email, mail, or electronically through an online portal, depending on the preferred communication method established with each customer.
4. Recording Sales and Updating Accounts: The sales transactions and invoices are recorded in the accounting system, updating the accounts receivable ledger to reflect the amounts owed by each customer.
5. Payment Receipt: When customers make payments, the business receives and processes the payments. Payment methods may include cheques, electronic funds transfers (EFT), credit cards, or other forms of payment.
6. Cash Application: The payments received are applied to the corresponding customer accounts in the accounts receivable ledger. Each payment is matched with the appropriate invoice to reconcile the customer’s account balance.
7. Follow-Up on Overdue Payments: If payments are not received by the due date, the business follows up with customers to remind them of overdue payments and inquire about the status of payment. This may involve sending reminder notices, making phone calls, or sending email reminders.
8. Collections: If payments remain outstanding after repeated reminders, the business may escalate its collection efforts by sending formal demand letters, engaging collection agencies, or pursuing legal action to recover the debt.
9. Account Reconciliation and Reporting: Regularly, the accounts receivable ledger is reconciled to ensure accuracy and completeness. Businesses also generate reports to monitor accounts receivable aging, outstanding balances, collection efforts, and cash flow projections.
10. Bad Debt Write-Off: In cases where it becomes unlikely that a customer will pay, the business may write off the bad debt as an expense and remove it from the accounts receivable ledger.
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