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  • Writer's picturePriyanka Dang

What is Accounts Receivable?

There can be different types of customers for a business like end customers, retailers, channel partners/dealers or whole sellers, direct corporate or Government customers to whom the company may supply end products or services against the company's invoices. The customers may have different kinds of agreements or contracts specifying the following:-

  1. Prices with specified units of measurement and currency

  2. Credit term, ie. after how much period the customer will make payment to the company after the invoice date (other than advance payment cases)

  3. Quantity of goods or services rendered in a unit of measurement.

In financial books, an invoiced amount due from the customer as per credit term in the agreement is called Accounts receivable. It is treated as a current asset in the balance sheet in financial books. Timely collection of receivables is crucial for the company's cash flows & financial health. It often requires aging analysis /follow-up with customers to prevent such receivables from becoming bad debts.

Periodic reconciliation with critical customers is essential to resolve any issues between the company’s books and customer books caused by factors such as below:-

  • Product /or service quantity received by customers.

  • Quality of End product /or service

  • Price differences

  • and so on

Thus, effective accounts receivables management is critical for avoiding bad debts and maintaining healthy cash flows /liquidity.


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