Effective financial management is the backbone of any successful business. It entails a lot of planning and organizing. It includes controlling and monitoring financial resources to achieve business goals and profitability.

Financial management is the keystone to long-term stability. Businesses might struggle with cash flow problems and excessive debt without it. Many companies fail because of poor financial management.

Accounts receivable (AR) and accounts payable (AP) play a critical role. They’re essential in maintaining cash flow and financial stability. You must understand these critical functions if you want a successful business.

What are the functions of accounts receivable and accounts payable? This post will break it down for you.

Doing the Job

Managing accounts receivable and payable is a taxing job. You need a specialist who knows the ins and outs of finances. So who should you look for? They should be someone who fits the accounts payable and receivable job description.

An AP and AR Specialist handles transactions related to incoming and outgoing payments. Their role ensures the company maintains accurate financial records. They make sure payment processes are efficient. It’s also their job to build strong relationships with vendors and customers.

An accounts receivable and payable expert has a degree in accounting or finance. You should look for someone with 1 to 3 years of experience in accounting or other finance jobs. This individual should know how to use accounting software. You need someone detail-oriented, has great problem-solving skills, and is an excellent communicator.

Breaking Down Accounts Receivable

Accounts receivable is the money your customers owe your business. The money is for goods or services delivered but hasn’t been paid yet. Think of when you paid for a service using your credit card. Or when you get billed every month for smartphone usage.

AR represents your company’s short-term assets. It’s recorded as an entry in the company’s balance sheet. The Accounts Receivable team has many functions, like:

• Invoicing Customers: Businesses generate invoices for customers who buy something on credit. Invoices specify the payment terms and due dates. It also has the details of the transaction. 
• Tracking Outstanding Payments:  The department in charge of AR tracks unpaid invoices. They make sure collections are on time. They also track overdue accounts and do follow-ups on payment.
• Managing Credit Policies: Companies that offer customers credit will have established terms. It helps decide who qualifies for credit sales. It also defines credit limits and payment terms to reduce financial risk. 
• Payment Collection: The AR department does the following up on payment. They’ll use automated reminders, send emails, or call customers. They also process payments, including checks and bank transfers. They also manage digital payment options.

Understanding Accounts Payable

Accounts payable is the money your business owes suppliers and vendors. You owe them for the goods or services you’ve received but haven’t paid for yet. It’s recorded as a liability on the balance sheet. This shows your company’s short-term obligations.  The AP group is in charge of the following:

• Processing Supplier Invoices: Suppliers will send invoices for the bought goods or services. The AP team checks invoices against sale orders and receipts. They make sure everything’s accurate.
• Managing Payment Schedules: Payment schedules depend on agreed-upon terms. It’s the AP specialist’s job to make sure payments are on time. This will help your business build good relationships with suppliers. 
• Recording Liabilities in Financial Statements: AP records are always updated. The company’s accounting system should reflect outstanding obligations. AP balances appear as liabilities in the balance sheet. 
• Maintaining Vendor Relationships. It’s important to have clear and open communication with suppliers. This ensures continued service and potential discounts. Good AP management could result in better credit terms and cash flow. 
• Preventing Duplicate or Fraudulent Payments: Internal controls help prevent fraud. That’s why you need invoice-matching systems and approval processes. The AP department verifies transactions before processing payments. 
• Optimizing Cash Flow: Businesses have strategies when it’s payment time. They schedule it to maintain enough cash flow. They can also delay payments within agreed terms. This lets businesses use their available cash well.

Your Partner in Financial Excellence

Parker Beth is always committed to helping businesses grow. We do this by finding the right people for the job.  Our company is an expert in connecting top-tier talents with outstanding management. Our records speak for us. It’s why we’re one of the top recruiting companies on the West Coast. We can find full-time professionals or contract workers for different industries. Contact us and let’s find the right fit for your team.