Managing Account Receivables: Loan

Running Head: MANAGING ACCOUNT RECEIVABLES
MANAGING ACCOUNT RECEIVABLES 2

Managing Account Receivables
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Introduction
Account receivable is created when a customer buys but does not promptly pay for it. In this effect, they take a “loan” from the company and promise to pay at a later date .As posited by Michalski, G. (2012), steps in managing accounts receivables are as follows;
1. Sign a Contract and Check Credit. Managing accounts receivable starts before the initial invoice comes out the door. With the guidance of legal counsel, develop a binding contract or engagement letter that sets forth your payment terms.
2. Track Accounts Receivable. A key part of this process is to efficiently track accounts receivable. You have to always know which accounts are outstanding and for how long.
3. Make Payment Easy. Give your clients the choices they desire to pay you promptly. Look into agreeing credit cards or enable direct transfers of payments.
4. Do Your Part. A delayed invoice will always lead to delayed payment. Ensure you tie up loose ends on your part of the equation and ensure that invoices are sent out in a time.
5. Re-Think Your Billing Approach. If billing after you complete the job is causing some challenges, reassess your payment methods. Ask customers to pay you in installments throughout the engagement, and/or need a deposit before job starts.
Step three is the most vulnerable to fraud this is because one person handling receipts, posting, accounting of transactions and write-offs is a source for disaster.
As argued by Michalski, (2012), accounts receivable fraud can be easily preventing by implementing basic accounting controls, audits and monitoring proper supervision. Careful accounting practices are worthless unless the auditor reacts well to any clues that might be found.
There actually are a lot of very positive aspects to factoring. A scenario is where there is No debt incurred – Factoring is NOT a loan and hence, you are not incurring any kind of debt. This keeps your balance sheet looking good, thereby making it easier to obtain other kinds of financing or to sell the company.
Conclusion
Bank financing is preferable over accounts receivable factoring, if banks can provide all the finances a business requirements. If a business is unbankable or does not qualify for a line of credit huge enough to partake development opportunities, accounts receivable factoring is the best alternative financing choice to supply the required cash flow. Careful choosing of a factoring company is necessary to ensure accounts receivable factoring is professionally discharged and well-priced.

Reference
Michalski, G. (2012). Accounts receivable management in nonprofit organizations. Available at SSRN 2193352.