Accounts-Receivable Budgeting

Invoices should include payment terms for accounts receivable.

It would be much simpler to run a business if you were paid immediately for all of the goods and services that you provide for your clients. In reality, however, many business transactions involve extending credit to customers and then waiting to get paid. "Accounts receivable" is a bookkeeping term that refers to the business your company has already transacted that has not yet been paid. Budgeting for company operations involves knowing how much your clients owe you, when he will likely pay and what you will do if he fails to meet his financial obligations.

Recordkeeping

Successfully budgeting for accounts receivable involves keeping close track of which accounts owe you money, how much they owe, and when you expect them to pay. Your recordkeeping should include a total of all accrued payments that you expect to receive from customers, as well as totals broken down to show how much each individual client owes. In addition, your recordkeeping should tally how much your business expects to have coming in from accounts receivable broken down according to the week that payment for each transaction comes due.

Timing

By maintaining an accurate tally of information about accounts receivable, you can successfully schedule payments to meet your own financial obligations in order to avoid finance charges and overdraft fees. For example, if you are expecting a substantial payment in the middle of the month, schedule substantial inventory purchases for around that time. Negotiate payment arrangements with your own vendors that enable your business to pay for products and services in synch with the revenue you are receiving from your own accounts receivable.

Billing

In order to receive the payments that are due to your business in a timely manner, it may be necessary to send bills to your clients. A bill serves as a reminder that money is owed, and it also saves customers the trouble of sorting through their own records for balances due, making it easier for them to pay. If you have been conscientious about maintaining bookkeeping records, you should have all of the information you need to create bills available to you in an easily accessible format.

Contingencies

Despite your best efforts to budget carefully and keep track of accounts receivable, you may sometimes find yourself short of funds because customers fail to pay on time. If possible, keep an emergency fund equal to a typical month's expenses in order to help your business deal with this possibility. Also work to develop symbiotic relationships with your own vendors by paying them promptly whenever possible, so you can ask for their forbearance in a situation where you are having difficulty getting paid.

References

• Understand Accounting: Accounts Receivable and Payable
• Accounting Coach: Accounts Receivable and Bad Debts Expense
• Statistical Forecasting: Budget Forecasting