Accounts Receivable Iodice - Module 8 Accounts Receivable...

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Module 8: Accounts Receivable Lisa M Iodice FIN 610, Prof. Brown
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Module 8 Accounts Receivable Lisa M Iodice FIN 610 For a company, managing accounts receivable is of paramount importance to not only manage to daily operations of the company but also manage its cash flow requirements. Accounts receivables indicate money owed by a company’s customers for goods or services that have been delivered or used, but not yet paid for. Receivables are essentially lines of credit that have been extended to customers and they are usually due in within a short timeframe – anywhere from a few days up to a year. While an accounts receivable balance indicates sales, that number alone does not translate into actual cash received. Without that cash a company may not be able to pay its own suppliers and vendors and may find itself falling behind with monthly bills. Our textbook explains trade credit as a form of financing extended by a manufacturer or wholesaler to their customers. It can benefit a company by increasing sales which, without trade credit, may not have been made to customers because of the customers’ cash constraints. It may also increase overall sales because trade credit is convenient and may trigger larger purchases than might otherwise have been made with cash alone. Trade credit also helps to foster the supplier-customer relationship. In today’s competitive business environment trade credit can be used as a tool to not only increase revenues but also to gain market share against rival businesses (Zietlow, Hill, & Maness, 2014). So why is managing accounts receivable so important? Simply put, it represents money – but it is only a representation. What happens if you forget to send out an invoice to a customer? That money does not get collected and subsequently you are out that amount of cash for the time being. A solid internal process is key to ensure nothing falls through the cracks (Martin, 2015). Communicating with the customer through invoices and follow-up aids with the timely collection process. Prompt invoicing and routine monitoring might prove to be time-consuming; Page 2 of 7
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Module 8 Accounts Receivable Lisa M Iodice FIN 610 automation of this through financial software is an alternative.
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