What are Accounts Receivable?
Accounts Receivable (A/R) refers to the amount of money the business is due from clients or customers that have purchased goods or items on credit. The time limits for these payments depend on the business’s agreement with the customer or the reseller partner. The account also keeps tabs on other debtors that might owe the business payment.
Significance of Accounts Receivable in E-commerce
When a business lets its customer’s purchase products or services online on a credit basis, the due payment is recorded in the accounts receivable tab. Here is why accounts receivable is such an important part of an e-commerce business:
- If a company has an accounts receivable tab, it lets customers buy their products on a credit basis. This can improve customer relations as they can pay the money back slowly.
- A business can streamline its accounting process if they keep track of accounts receivable in an organized balance sheet.
- Measuring the liquidity of the assets of a business and managing cash flow also becomes more accessible.
- It helps businesses track which customers owe them money and makes cash flow management easier.
Prerequisites of Accounts Receivable (A/R)
Here is how the accounts receivable process works:
- The customer first orders their products via a purchase order or a contract.
- After that, the business delivers the order to the customer, and if the payment is due in credit, the business notes down the amount in its accounts receivable tab.
- After the customer pays back the money, the business records the amount as a deposit, and the debt is cleared from the accounts receivable account.
Use Case with Accounts Receivable
Accounts receivable (A/R) is an important concept for e-commerce businesses that allow customers to order and purchase items on a credit basis. For example, if an online business sells its products on a NET30 or NET60 basis, customers must pay the company within 30 or 60 days of receiving the product. It will be reflected in the invoice the client receives and in the business’s accounts receivable tab.