We live in a world of organization, and this is evident in every level of interaction we as people have with each other. From a unit as small as the nuclear family, to the wider world at large, organization is needed for survival and cohesion. In offices, this “organization” is very apparent in division of labour and handling of tasks according to departments. One very important department is the account department, as they are responsible for the financing and accounting of the organisation, which is pertinent to the seamless execution of tasks for that very company.
The account department takes care of various financial aspects of the company; the daily expenses, payment of salaries, assets and liabilities, etc. Keeping track of these is important, and a lack of record keeping in these areas could land the company in the red. One such financial aspect that requires attention and appropriate record keeping is what is known as receivables, also known as account receivables. John Abio helps to understand how Receivables are tied to cash flow in a company.
Receivables are an asset class, and they represent part of the general income of a company gotten through the exchanges of goods and services. They are basically the debts that are owed to the company in question by their customers, clients, other companies and so on, for goods that have been purchased or for services that have been rendered but have not been paid for in cash (or other legal tender).Like mentioned earlier, receivables are an asset class, and are recorded under the company’s asset accounts. One might wonder why this is, as they are not actually properties that the company presently hold. That rationale is flawed however, as the very definition of assets stand as value companies own, that can be used to collect loans and contribute to the overall value of the company. The very existence of debts in the company’s name imply that those debts would be collected normally or through collaterals and would sometime end up as value the company holds.
Utility of account receivables
Receivables can be used for many things by a company, and records of them are prudent in the long term for efficient running and operation of the company’s procedures. These are a few things that the receivables in the accounts of a company can be used for:
- As collateral for loan collections
Collateral are assets that can be used to collect loans from banks and other financial institutions. As receivables are recorded under a company’s asset accounts, they can be used to collect loans while serving as collateral in case of defaults.
- For providing funds for company’s procedures
Receivables are used to ensure seamless operations in the company.
- To stimulate flow of cash in the company
Organizations can decide to reduce the credit terms on the account receivable. In this process, the company can postpone the addition of cash into the receivables account. When this is done, the cash flow in the company is eased as the conversion rate of assets into liquid cash is reduced.
