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What are accounts receivable?

Accounts receivable (AR) refers to money owed to the company. Human Resources professionals should understand how AR impacts their company, which elements of accounts receivable they work within their departments, and how they can work to ensure compliance with financial regulations. 

 Accounts receivable (AR) refers to money owed to the company. AR differs from accounts payable (AP), the short-term debts and liabilities, such as supplier payments, that a company owes. Together, AR and AP can help show the net working capital of the company:

Accounts receivable + inventory - accounts payable = net working capital

Some key terminology related to accounts receivable includes:

  • Cash flow

  • Credit management

  • Invoices

  • Payment terms

  • Customer Relationship Management (CRM)

  • Creditworthiness

  • Collections

  • Aging reports

Accounts receivable include any invoices for goods or services purchased on credit that have not been paid to the company at the time of reporting. It is a payment agreement similar to a temporary line of credit extended to a customer. The payment of the invoice can be set to be paid at a certain point in the future, such as one day, many months, or even a year later, though typically in two months or less. 

The following are the different types of accounts receivable recorded in financial reports:

  • Employee receivables: These are the personal expenses employees owe their employer, such as repayments of travel advances, travel expenses, or payments for equipment the employee damaged. 

  • Trade receivables: This is a journal entry of the total sales made by the company.

  • Vendor receivables: These are receivables such as incentives or promotional discounts that are going to be paid by suppliers.  

  • Notes receivables: These encompass the promissory notes owed to the company. Promissory notes are legally binding contracts stipulating the due dates of funds owed to the company. 

  • Interest receivables: This records the interest payments that will eventually be paid to the company. 

  • Insurance claims receivables: If there are any insurance claim payments owed to the company, they will be recorded in this entry.

Accounts receivable software, or accounts receivable management software, is software a company can use to help manage and streamline their AR.  

The following are types of accounts receivable software:

  • Invoicing software: This type of software allows a company to create and send invoices to clients and customers. The invoices can be sent electronically through email. From the customer’s end, the invoices can be paid online. Invoices can be tracked, and notices can be sent to the company when invoices are paid. 

  • Automated reminders: Reminders can be sent to clients or customers for overdue accounts receivable.

  • CRM software: This software keeps track of all communications with clients and customers and records customer information. CRM software can manage customer accounts and can record customer payments, their credit limits, and the terms of their lines of credit.

  • Payment processing software: Payment processing capabilities can let customers pay online through electronic funds transfer (EFT), Automated Clearing House (ACH),  or credit card payments.

HR professionals should be aware of compliance regarding accounting and financial reporting. When handling financial reporting, companies must follow the Generally Accepted Accounting Principles (GAAP). Also, keep in mind the following best practices when dealing with finances and employee records:

  • Keep good records: Maintain accurate records of employee benefits, deductions, and compensation.

  • Use accounting software: Make use of some of the software in the preceding section as well as other software, such as payroll software that can automate processes, reducing the possibility of errors. 

  • Delegate responsibilities: Errors in financial reporting can be reduced by delegating specific accounting duties within your department, like payroll processing and benefits administration. 

  • Be aware of compliance issues: Keep updated on tax regulations, financial reporting laws, and labor laws. Compliance is also important for international companies that must keep on top of changes in local labor laws where they employ workers. 

  • Keep data secure: Private and sensitive data, such as financial data may be handled in HR departments. This data must be kept secure. Plus, data privacy laws must be followed when recording or transmitting information. 

  • Educate employees: As an HR professional, part of your duties involves educating employees on financial matters, such as benefits, payroll, deductions, and taxes. 

  • Train employees: Keep your department up-to-date as far as training and development on financial and accounting matters and best practices. 

Accounts receivable is an important part of an employer’s finances. HR departments have a hand in the success of a company’s finances in that they help to recruit, train, and compensate accountants and other specialists who work on AR within the finance departments of your company. All financial reporting must follow compliance laws, regulations, and standards, such as GAAP.

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