How to Manage Accounts Payables and Accounts Receivables

Oct 19

Introduction

Accounts payable and accounts receivable are two of the most important functions in any company. Accounts payable refers to money owed by a company to its suppliers, while accounts receivable refers to money that the company has not yet received from customers. In this blog, we will discuss how these two functions influence each other and what can be done to ensure their smooth running.

What are Accounts Payable and Accounts Receivable?

Accounts payable and accounts receivable are two important financial management functions. In short, they are used to record transactions between a business and its suppliers or customers. They can be thought of as the opposite sides of a transaction coin; accounts payable represent the liabilities of the company while accounts receivable represent the assets.

Accounts payable records all amounts that have been owed by suppliers to your company, such as invoices for goods or services purchased from them in order to keep your operations running smoothly. If a supplier sends an invoice for $1,000 worth of goods and services, you’ll pay them $1,000 worth of cash or product at some point in time (most likely within 30 days). Accounts payable are considered liabilities because they represent money owed by the business; when you pay off an account payable, it's considered an expense for tax purposes because it reduces cash on hand rather than increasing it.

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What Is the Difference Between Accounts Payable and Accounts Receivable?

First, let's look at the difference between accounts payable and accounts receivable.

Accounts payable are bills that have been sent to a company for payment; these include invoices and other paper documents. Accounts receivable on the other hand, is an invoice that the company has sent out to its customers; it represents money owed by customers. Essentially, accounts payable is a balance sheet account while accounts receivable is an income statement account.

How to Manage Accounts Payable

You can use software to manage your accounts payable. Software, like QuickBooks Online, can help you create invoices and manage the payment of vendors. It will also allow you to view all of your pending payments, including checks that have been issued but not yet cashed, as well as past due invoices.

This is how it works: You create an invoice using QuickBooks or Zoho. The invoice includes details like how much is owed by the customer, what type of business transaction took place (such as a purchase), when it was rendered/created, who provided the service/goods/products (the vendor), etc., along with any other information that might be relevant to this type of transaction (e.g., discounts offered). Once this step has been completed successfully, then you move on to issuing payment requests via paper check or electronic funds transfer."

Managing Accounts Receivable

Accounts receivable is the money owed to your business by customers. If a customer owes you $10,000 and has been paying you monthly for six months, then you have $60,000 of accounts receivable.

When you succeed in getting paid on time by your customers, it allows your company to focus on more important issues such as growing the business and increasing sales. In addition to being able to pay vendors on time, proper management of accounts receivable enables a small business owner to make forecasts and projections with greater accuracy.

The benefits of managing accounts receivable include:

An accurate picture of cash flow at any point in time (daily or weekly)
Easier forecasting of future cash needs because all outstanding invoices are tracked regularly without fail

What Is the Significance of Accounts Payable and Accounts Receivable?

As we have discussed, accounts payable and accounts receivable are two sides of the same coin. They both play an important role in any business.

You need to make sure that you receive money from your customers as soon as possible so that you can pay back the vendors who are providing goods and services to your company.
Your vendors want to be paid on time because they want their money right away so they can pay their own suppliers and employees before their bills go past due date.
You, as a business owner, have two options: either you can sell products or services first before paying its cost price, or wait until you receive payment from your customers before taking care of all other expenses like taxes, salaries etc., which would result from selling a good or service first then paying its cost price later on.

The Bottom Line on Managing Accounts Payable and Receivable

In this article, we’ve discussed the importance of managing accounts payable and accounts receivable. If you are a small business owner, it is imperative that you keep track of what you owe your suppliers and customers. At the same time, it is equally important for you to know what has been paid by your clients on account (accounts receivables). This can be achieved through proper account management software.

Conclusion

By now, you may have a better understanding of what accounts payable and accounts receivable are and why they’re important in business. You may also be wondering how they can help your company grow and make money. The answer is simple: Accounts receivable are the amount of cash that is owed to your business; accounts payable are the amount of money owed to your suppliers. These numbers will tell you whether or not your business is profitable or losing money on every transaction made with vendors/suppliers (i.e., suppliers who provide goods or services).