The end of the year is a busy time for many businesses, but it’s especially hectic for accounts receivable teams. Though the year is winding down, many of your accounts receivable (AR) duties are ramping up.
How do you ensure that your books are as ready for the new year as you are?
There are a few tasks you don’t want to skip if you want to start the new year off on the right foot. Read on to find out the tasks you shouldn’t skip as you’re wrapping up your year-end accounts receivable.
What is the accounts receivable cycle?
The accounts receivable cycle is the process businesses use to track and collect payments from customers, beginning when a customer makes a purchase on credit and ending when you receive payment.
The accounts receivable cycle can be divided into four stages: account setup, invoicing, collections and payment processing. Each stage has its own set of activities that you must complete to move on to the next step:
- Account setup: Businesses set up credit terms with their customers. This process usually happens when a customer makes their first purchase on credit.
- Invoicing:.Once goods and services are provided, companies send their customers invoices that detail their purchase, payment, due date, etc.
- Collections: Businesses will begin the collection process if a customer doesn’t pay their invoice by the due date. This usually involves sending reminders and making phone calls to try and collect payment.
- Payment processing: Once businesses have received payment from their customers, they need to process it and apply it to the correct invoices. You can do this manually or through accounting software.
The AR cycle doesn’t always run smoothly – sometimes, customers dispute their invoices or fail to make payments on time. When this happens, businesses must take action to resolve the issue so that they can receive the amount due. But in the end, the accounts receivable cycle is essential to running a successful business.
What are the most important goals of AR?
Accounts receivable is an essential department in any company. After all, the money owed to a business is its lifeblood.
But what are the top goals of accounts receivable?
Accounts receivable strives to achieve many different goals, but some are more important than others:
- One of the most important goals is to ensure that all invoices are paid in full and on time. This can be a challenge, especially if a customer has financial difficulties. However, it is essential to the health of your business.
- It’s vital to maintain good relationships with customers. Having an open line of communication encourages customers to pay their invoices on time and makes it more likely that they will do business with you again.
- It’s also critical to keep accurate records. This includes tracking invoices and payments and following up on any outstanding payments. This can be time-consuming, but it is essential for maintaining a healthy cash flow.
- Finally, accounts receivable must always strive to improve its collections process. For example, developing better ways to contact customers and follow up on overdue payments.
Note: To maintain good customer relations, you must balance collecting payments quickly and giving customers enough time to pay their invoices. Suppose you’re too aggressive in your collections of outstanding accounts receivable. For example, you risk damaging relationships with customers. On the other hand, if you give customers too much time to pay, you may be unable to cover your expenses.
Do accounts receivable get closed at the end of the year?
At the end of every year, businesses worldwide go through the process of closing their books. One of the most critical aspects of this process is closing accounts receivable. This account represents the money owed to the business and requires reconciliation.
There are a couple of different methods that you can use to close out accounts receivable:
- The most common method is to write off any outstanding invoices as bad debt. But unfortunately, you will never receive payment for those invoices, and you will have to absorb the loss.
- Another method is negotiating with the customer to set up a payment plan. It might be a good option if the customer has financial difficulties but can still pay over time.
Regardless of which method you use, it is essential to ensure that you handle your accounts receivable year-end closing appropriately.
What do you do for year-end accounting?
At the end of every year, businesses and individuals face the same daunting task: accounting.
For some, the very word conjures up images of ledgers and spreadsheets, while others may feel a sense of dread at sorting through a year’s worth of financial records. However, with some preparation and knowledge, tackling your year-end accounting doesn’t have to be overwhelming:
- The first step is gathering your financial records for the year. Documents may include everything from bank statements and receipts to invoices and tax documents.
- Once you have all your documents in one place, you can begin organizing and categorizing them. Depending on the size and complexity of your finances, this step may take some time, but it will be worth it in the end.
- Finally, when you have your records organized, it’s time to start crunching numbers to arrive at the final totals maintained in the books. Accuracy is critical here for your personal records and auditing purposes.
The organization step is where many people start to feel overwhelmed, but there are a few key things to keep in mind:
- First, don’t try to do everything at once. Focus on one task at a time and take breaks when necessary.
- Second, use technology. Many excellent accounting software programs can make the process much easier.
- Finally, don’t be afraid to ask for help. If you’re feeling stuck, reach out to a professional accountant or tax preparer.
With a little effort, you can quickly get through your year-end accounting. Just remember to take it one step at a time and seek help when necessary.
Eliminate the manual process of year-end accounts receivable with AR automation
Year-end accounting can be daunting, but it doesn’t have to be. By gathering all of your financial records and taking the time to organize them, you can make the process much simpler. Additionally, many great AR automation platforms and professionals can help you through the process. Remember to take it one step at a time; it will be over before you know it.
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