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How to Manage Accounts Receivable for Services Industry Company?

Account Receivable

Cash flow problems are the major issue in every company; well-managing account receivables would minimize these problems.

The following are some tips that could help you to manage accounts receivables in your company if it is a service providing company.

General speaking, large amount and long-term of account receivable are the cost of the company and minimize accounts receivables would help the company not only solve cash shortage for its suppliers but also generate additional income through interest income.

Yet, unrecorded accounts receivable might be the high cost bigger than above as the result of fraud.

The main objective of these trips is to manage the above issues.

Manage Un-recorded Account Receivables

The company that sells services might be difficult to manage its account receivables rather than the company that selling physical products.

Base on experience, many of the service providing company feel doubt that not all of the services that provide to their customers by their staff were charged and registered.

If the company failing to charge or register, there will be lost and that means there are no account receivable records too.

The final result is the company making a loss. Failing to charge or register might be because of intentional or unintentional.

Yet, whatever reason, as you are the accountant or in the accounting team, you have to make sure that all of the service providers were a charge.

To ensure that all service providers were charged, the company should have a good procedure of engagement letter or contract which links to time-sheet or time charge.

Related article  How Do You Calculate Aging Accounts Receivable?

Time-sheet should record all of the staff the professional activities, and to be able to records the time-sheet engagement letter or contract reference is mandatorily required.

In this stage, the company should build a system that integrates between time to billing which is control by receivable or billing accountant. Doing this, we could make sure that all of the services provided are billed.

How to Minimize Account Receivable Balance?

As state about minimize account receivable balance benefit a lot to the company; for example, the company has a good cash flow to solve its daily operating expenses.

Collect account receivables is not the sole responsibility of accounting departments, but it is also the major responsibility of the engagement manager or service manager. 

For a service company, if all of the services providers have a contract or engagement letter, then the company should build the goods system to make sure that billing is in accordance with the contract.

It just simply means we have to make sure billing is 100% comply with the contract.

Seriously, if the customer fails to pay that is the problem, but a more serious problem is we are failing to bill. So what we really mean here is we should building the system which shows the status of billing of each engagement letter or contract.

In addition, the relevance manager should be the one who hands the bill to the client by telling them that we are billing base on contract.

The following are books relate to accounting receivable management we would recommend.

Related article  What are Other Receivables? Meaning, Formula, And Example

If you buy the book by clicking from this site, we will get some small commission yet the price is still the same as you directly to Amazon site. If you found it helpful, please click share :)

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