Accounts Receivable Process

The accounts receivable process, when done well, makes sure your company collects payment for the goods or services it provides. 

An effective accounts receivable process is the cornerstone of maintaining cash flow in a busy business environment. 

Our process helps you check your client is going to be able to pay, informs your client of the necessary steps for payment, and covers best practices for accounting for the incoming payments.

For a video overview of an accounts receivable process, check out the link below.

If the company purchasing from you is going to be ordering large quantities of your product it is important to check they will be able to continue to pay for their orders. 

Send the buyer a credit application for them to fill out. 

The application should contain the following fields. Use the subchecklist to record each of these fields is included on the application.

Run a credit check on the ordering company to see their credit record.

Contact your credit reporting bureau and request a business credit check. 

The credit score will be a number between 1 - 100. A score of 70 or more demonstrates a company with a healthy credit record. A score of below 30 should be avoided as it is a sign that they are near bankruptcy.

Use the form field below to record any necessary notes.

Your terms of sale document will explain when you want the payment to be sent. Many companies will give a thirty-day window for sales. 

Your terms document will also cover the late payment fees and any potential interest you will charge for late payments. This incentivizes the buyer to pay on time and covers any costs incurred to you for late payments. 

You may also consider providing a discount to early or immediate payments to further incentivize companies to pay as soon as possible. Continual late payments across a number of companies can create a cash flow problem in future. 

If you are a US based company, refer to the FTC to check your terms adhere to the necessary legal documents.

Use the drop down field to record the terms have been sent.

The invoice is the document you send to customers who will be paying at a future date. It is not a sales receipt, which is the document a customer receives if they pay on purchase.

The invoice you send should be sent at the time of the sale documenting all deliverables and prices in advance. This document should also detail the date of payment and the means of payment. The word "invoice" should be clearly stated on the document along with its identifying number, and all names and addresses of all parties should be included.

Send the customer an email asking when in the month they prefer to make payments. Then upload the prepared invoice below.

You can use our Process Street creating an invoice checklist to help you build your invoice.

You can use an accounting platform like Quickbooks, Mint, or Freshbooks, or you can email the invoice document to the customer. 

Dennis V Niven recommends sending the invoice digitally in order to reduce the barriers surrounding the payment. This way the buyer receives the document instantly and you are able to follow up with the buyer if necessary.

Niven also recommends phoning the responsible person within the accounts payable division of the buyer company at moments where this is possible. He believes the creation of this personal connection encourages buyers to pay on time, improving your cash flow. 

Use the dropdown to record whether this document has been sent.

Using either excel or previously mentioned online software like Quickbooks, you can easily track your accounts receivable.

Record all activity into your accounting system. Use the subchecklist below to record which columns you are using to track activity:

If possible, keep a second printed copy of your important materials. These printed materials can be used for securing against technical failures. They can also serve as security checks to ensure data has not been retroactively tampered with. 

Print invoices and monthly overviews of activity. Keep these materials clearly filed.

Send your clients a monthly statement outlining what they still owe. This document should also show payments received. The client will then clearly know the unpaid balance they have remaining with your company. 

This process allows you to send reminders to clients, encouraging prompt payments.

Reach out to the accounts payable officer at the buyer company to check they have received their monthly statement. 

You can use the email widget below to email the buyer and inform them they will be receiving monthly updates from now on.

For services, you bill the client for the value of the services you provided. There are no purchase costs to be concerned with.

If you send an invoice to a client for $20,000 you need to record it twice in your journal. 

You record one debit for $20,000 to accounts receivable and one credit of $20,000 to sales. Two journal entries of equal amounts. 

For the sales of goods, you need to consider purchase or manufacturing costs. 

You record the sale the same as in task 14 by entering a credit to sales and a debit to accounts receivable.

However, there is an added step. If you sold $20,000 worth of goods which only cost you $10,000 to purchase you need to record a journal entry of a debit of $10,000 to costs of goods sold, and a credit of $10,000 to the inventory account. 

These techniques bolster the value of the accounts receivable and sales accounts while writing the cost of goods as an expense, and reducing the asset value of the inventory account.

XtraNormal - Accounts Receivable Tutorial [Video]

Process Street - Creating an Invoice Checklist

Chron - Run Business Credit Check

Dennis V Niven - Best Practices for Accounts Receivable Process Collection

Michael R Lewis - How to Process Accounts Receivable

IPPayments - Accounts Receivable Automation

Deloitte - Strategies for Optimising Your Accounts Receivable

Accounting Tools - Accounts Receivable Controls

PeopleSoft - Accounts Receivable

• Accounting Onboarding Procedures
• Creating an Invoice
• Bank Reconciliation Template
• Expense Management Process
• Accounts Payable Process
• Income (Profit and Loss) Statement Process
• Cash Flow Report
• Balance Sheet Statement Preparation Checklist
• Business Tax Preparation Checklist
• Annual Financial Report Template