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Everything you need to know about accounts receivable

Accounts receivable is often a confusing term for business owners and entrepreneurs alike.

For accountants, however, it is a cornerstone of effective financial management and ensuring compliance in the eyes of HM Revenue & Customs (HMRC).

Below, we have written a short guide on accounts receivable so you can understand its importance in the management of your business and how you can maximise its benefits.

What is accounts receivable?

In simple terms, accounts receivable refers to the amount of money owed to your business for goods or services provided.

When you make a sale but don’t receive immediate payment, that outstanding amount is categorised as accounts receivable on your balance sheet.

For many small businesses, the belief is that cash is king. However, offering credit terms can be a necessary evil to attract and retain clients.

Therefore, managing your accounts receivable effectively is essential to maintaining a healthy cash flow and retaining customers.

In essence, accounts receivable is an interest-free loan that you extend to your clients, and the quicker you can convert these into cash, the better for your liquidity.

Processes involved in managing accounts receivable

Managing your own accounts receivable is a complex task and is often better outsourced to an experienced accountant. However, there are some basic tenets to follow.

How accountants use this information

Accountants use accounts receivable data to help you:

Why you should outsource to an accountant

Simply put, accounts receivable is complicated and time-consuming and there are numerous benefits to outsourcing this task to a qualified financial professional, like an accountant.

Accounts receivable may sound like just another accounting term, but it’s a critical aspect of your business operations.

Effective management of accounts receivable can make or break your cash flow, directly impacting your business’s sustainability and growth.

Outsourcing this task to an experienced accountant can not only free up your time but also provide you with valuable insights and ensure compliance, thereby aiding in the better management of your business.

Get in touch if you have more questions or need professional help with managing your accounts receivable.


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