In business accounting, accounts receivable refers to money owned for products or services. Also known as A/R, it’s essentially an invoice for payment that hasn’t been received yet. If your business performs a service and allows customers to pay after it has been completed, for instance, you’ll have an accounts receivable for completed jobs that customers haven’t paid for.
The purpose of accounts receivable to keep track of money due. If a customer owes you money, you need a record so you can collect it. Accounts receivables allows business owners to do just that.
Of course, not all businesses need accounts receivables. If your business requires payment at the time the customer purchases the goods or service, you won’t have any money due, in which case you also won’t have any accounts receivables.
Accounts Receivable in Quickbooks
When using Quickbooks, you’ll probably come across accounts receivable. Quickbooks automatically creates and adds them to your chart of accounts the first time you create an invoice. Quickbooks will then use this accounts receivable to track who owes money to your business and how much they owe. This information is listed as accounts receivables in your Quickbooks account. If you have two or more accounts receivable, Quickbooks will allow you to choose the account you want to use when creating a new invoice or entering a customer payment.
Accounts Receivable Financing
There’s also a special type of business financing that involves the use of accounts receivables. Known as “accounts receivable financing,” this is an asset-based financing option in which a business owners sells his or her business’s accounts receivables for capital. The financing company, typically called a “factoring company” pays the business owner for his or her accounts receivables. Rather than paying the business owner, however, the customer pays the factoring company. It’s a mutually beneficial financing option that allows business owners to receive cash in less time while the factoring company earns additional money on the receivables.
Normally, accounts receivables financing companies pay roughly 80% for accounts receivables. If an invoice is worth $1,000, for instance, the factoring company will pay $800 for the invoice. However, the company may also pay the remaining 20% / $200 after it has collected payment from the customer. In this scenario, the factoring company makes a second payment to the business for the remaining amount of the invoice minus a factoring fee.
Have anything else you’d like to add? Let us know in the comments section below!