Accounts Receivable and Debtor Management Services

Accounts Receivable (AR) are the payments or proceeds received by a company from customers who have purchased services or goods on credit. The credit period is usually short, ranging from a few days to months or even a year in some cases.

Accounts receivable refers to an organisation’s unpaid bills, or the money clients owe the organisation. The term refers to accounts that a firm is entitled to receive after delivering a product or service. Accounts receivable, often known as receivables, indicate a line of credit given by a business and typically include terms requiring payment in the short term.

Accounts receivable are recorded as assets on balance sheets since the client has a legal duty to pay the debt. They are classified as liquid assets since they may be used as collateral to obtain a loan to assist in meeting short-term commitments. Receivables are a form of working capital in a business.

Debt management refers to the measures taken to minimise or eliminate debt. It entails a number of stages and actions, including negotiating with creditors for a lower interest rate, developing a budget, and giving discounts to increase sales. In essence, it refers to any action taken to minimise, reorganise, or do away with financial liabilities.

Debt is an unavoidable aspect of running a business. A line of credit, business loan, or credit card for business can assist your firm in hiring new staff, purchasing merchandise, purchasing equipment, and financing expansion. However, too much debt might obstruct your company’s goals and become an unsustainable burden. As a result, debt management is critical to maintaining your credit rating and business operations.

Accounts receivable are calculated in the following steps;

1. Calculate all charges

   Add up the amounts that customers owe for services and products delivered. Essentially, the purchases were made on credit, and the client owes your business on a short-term basis. Every business has a timeframe for calculating their accounts receivable, such as monthly or quarterly.

2. Find the average

   This is achieved by calculating the total accounts receivable amount divided by the number of line items.

3. Calculate net credit sales

   It is the first step in calculating the accounts receivable turnover ratio. Subtract the sales allowances and sales returns from sales made on credit.

4. Divide net credit sales by average accounts receivable

   This is how your accounts receivable turnover ratio is calculated. This percentage offers you a better understanding of how effective you are at collecting money due to the company.

In general, a greater number is preferable. It indicates that your consumers pay on time and that your business is effective at collecting debt. A higher figure may also indicate improved cash flow, a stronger balance sheet or income statement, balanced asset turnover, and even more creditworthiness for your organisation.

A high percentage may also indicate that a corporation is cautious about granting credit to its consumers. Conservative credit practices can help businesses avoid offering credit to clients who may not be able to pay on time.

On the other hand, having an overly cautious lending policy may turn off potential clients. These consumers may then conduct business with competitors who can provide and extend the credit they require. If a firm loses customers or has poor growth, it may be better off easing its credit policy to boost sales, even if it results in a lower accounts receivable turnover ratio.

A debt management plan (or DMP) is a technique to get out of debt and rehabilitate your credit while making affordable monthly payments. They may be quite advantageous for businesses that are in debt and need assistance getting a handle on it. Participating in a debt management plan also teaches companies how to properly manage their finances so that they don’t go into debt again in the future.

Multiple unsecured debts are typically wrapped into a single monthly payment under a standard debt management plan.

If you collaborate with a debt management company, the firm may negotiate with creditors on your behalf in order to create a sustainable payment schedule. This plan may include cheaper monthly payments, lower interest rates, or the elimination of certain penalties. In exchange, you may be required to commit to a structured payment schedule that usually takes several years to complete.

If you determine that a debt management plan is the best option for you, your credit counsellor can assist you with enrolling. He or she will negotiate interest rates with your creditors and create a payment schedule, which you will examine and accept before the plan begins. After essential operation expenditures such as rent, utility bills, mortgage, secured loans, and employee expenses have been met, the leftover funds can be split among creditors.

You will then make a monthly payment to your credit counselling company. In turn, the organisation will transfer the funds to your creditors in accordance with the payment plan you agreed upon.

A debt management strategy will cost you very little money. You should only have to pay a small one-time set-up charge and minimal monthly maintenance charges after counselling sessions.