What is Accounts Receivable?

Not all businesses require customers to pay immediately when purchasing a product or service. Some businesses allow customers to pay after they’ve made a purchase. Known as accounts receivable, it’s an internal form of credit in which a business sells a product or service to a customer under the agreement that the customer will pay for it in the future. Continue reading for more information on what is accounts receivable.

What is Accounts Receivable?

Overview of Accounts Receivable

Accounts receivable refers to outstanding invoices that clients owe to a company for products or services rendered. Accounts receivable is�designed to help customers purchase products or services.

Accounts receivable may be recommended if a customer doesn’t have the necessary funds on hand to buy a product or service. The business transfers the product or service to the customer, while the customer agrees to pay for it, typically by making weekly or monthly payments.

The repayment terms of accounts receivables vary depending on the business. Some businesses use one- or two-month term lengths, whereas others use year-long term lengths. Some businesses also offer accounts receivable to customers at no additional charge. Others may charge interest on any balance owed.

Pros and Cons of Accounts Receivables

Business owners can benefit from offering accounts receivables to customers in several ways. First, it typically attracts new customers who would otherwise not have been able to purchase a product or service due to financial challenges. Second, it helps businesses foster long-term relationships with their customers. Third, accounts receivables can be used to secure funding from a private lender.

But there are some drawbacks to using accounts receivables. Statistics show that nearly half of all credit-based purchases are paid late. If a business begins to offer accounts receivables to its customers, it may experience more late payments.

The good news is that accounts receivable funding, such as factoring, takes this burden off the business’s shoulders. With factoring, the business sells its accounts receivables — unpaid customer invoices — to a private lender, who is then responsible for collecting the money from customers.

How Accounts Receivables are Recorded

Accounts receivables are typically recorded as assets on a business’s balance sheet. This is because accounts receivables are valuable and worth money. Therefore, businesses treat them as such by recording them as assets on their balance sheet.

This article was brought to you by�Intrepid Private Capital�Group�� A Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our�website.