Cash Management & Cash Flow Assignment
Managing Accounts Receivable
Mackensie Jimison – ENT 650-50
“Accounts receivable refers to the outstanding invoices a company has or the money the company is owed from its clients. The phrase refers to accounts a business has a right to receive because it has delivered a product or service. Receivables essentially represent a line of credit extended by a company and due within a relatively short time period, ranging from a few days to a year.”(Staff) “If a company has receivables, this means it has made a sale but has yet to collect the money from the purchaser. Essentially, the company has accepted an IOU from its client.” (Staff)
Accounts receivable is a current asset on the balance sheet, when the inventory decreases by the accounts receivable increases by the same amount. Then accounts receivable decreases the same amount the cash for the company increases, once the money is received.
For my business, Kensie’s Cottages, Accounts Receivable would be rooms that are booked but have not been paid yet, have not been paid in full or they have not completed their stay yet. I would like to charge in advance, how Airbnb does it, when you book a place that’s when you pay for it which is well before your stay there. So if they did not stay due to extenuating circumstances then they would be able to get a refund. This way we don’t have to worry so much about them paying, only worry about the outliers and getting them their money back. The booking and the purchasing would happen at the same time, the customer will not be able to book the cottage without paying first. The same goes for the long-term rental they will be required to put down a deposit and then pay monthly. The accounts receivable would include the monthly rent that has not been paid yet by the renter, but should be paid by the 1st of every month. This would be considered notes receivable since they would have signed a year lease saying that they would pay every month.
I want to eliminate accounts receivable all together so you don’t have to hound customers later to try to get them to pay after receiving the service. I don’t want to deal with that middle step of waiting to get paid. That’s why I will require customers to pay ahead of time, when they book their stay they will have to pay in full at that time in order to eliminate the accounts receivable process all together. In the book Entrepreneurial Finance, Rogers states that accounts receivable is a major vulnerable area for entrepreneurs. An inefficient accounts receivable system creates so many problems to where a company has need for working capital but all the money is in accounts receivable where they can’t use it. Rogers called collecting receivables the lifeblood of the business. He talks about how entrepreneurs would have to call customers to beg them to pay, the only way to prevent it would be to have a good accounts receivable collection system. (Rogers)
Staff, Investopedia. “Accounts Receivable – AR.” Investopedia, 31 July 2014, www.investopedia.com/terms/a/accountsreceivable.asp#ixzz4sP2K2TOf. Accessed 11 Sept. 2017.
Rogers, Steven, and Roza Makonnen. Entrepreneurial finance: finance and business strategies for the serious entrepreneur. New York, NY, McGraw-Hill, 2014.