BSBFIA303PROCESS ACCOUNTS PAYABLE AND RECEIVABLEPRESENTATION 6

PRESENTATION OBJECTIVES

At the end of this presentation you will be able to:

• Follow up outstanding accounts

• Maintain the accounts receivable ledger system to monitor the

credit position

• Conduct an aged analysis of accounts receivable

• Identify outstanding accounts

• Determine collection procedures

• Report and follow up outstanding accounts

• Monitor and review credit terms based on credit policy

MAINTAIN ACCOUNTS RECEIVABLE

Your customers buy from you on credit. They owe you money. Customers will

have issues, queries and changes to their information. You must maintain the

following to ensure accurate balances and information regarding your debtors.

Decisions will be based on the amounts of accounts receivable. If the information

is not correct it will impact on the decisions made.

• Use your AR ledger to create a schedule and ageing summary that allows you

to monitor the payment or non payment of accounts

• Accurate reports allow you to clearly identify overdue amounts, avoid issues

with non payment and helps managers with planning and control of cash flow

• It is important to clearly communicate with your customers on time every

time

Promptly enter

payments

Credits and returns

Any notes of processes and

follow up of issues

Other information to

manage accounts

MAINTAIN AR LEDGERS

In order to maintain accurate records and receive payments on time:

• Send all invoices and statements promptly and are accurate - poor

administration can hold up payment

• Businesses must monitor any payment or non-payment carefully

• Outstanding accounts cause cash flow issues

Follow up and implement effective processes can alleviate pressure

• Clearly and constantly communicate terms of trade/credit – when is

an account is to be paid?

• Offer discounts for prompt payments

• Establish set payment arrangements and review all details as needed

• Establish and enforce credit limits for each debtor

AGED ANALYSIS OF ARMost organisations will experience debtor’s that are slow to pay or don’t pay at all.

The purpose of an aged summary is to keep track of the number of days and the

amounts of accounts outstanding. An accurate ageing summary allows you to manage

any non-paying accounts.

This is referred to in terms of days, commonly:

Accounts with unpaid amounts in 90 days pose a threat to your business. This may

mean you have not been sending statements or that the debtor has trouble paying.

You may choose to place an account on stop credit (not sell any more product or

service to a customer until the account is paid) or consider a stronger approach to gain

payment.

It is preferable to manage this before a customer gets to 90 days. The aged summary

lets you know how long an account has been unpaid.

Current 30 days

60 days 90 days

AGED ANALYSIS OF AR• The ageing summary takes the total amount of money owing and

breaks it down into the age of the debt

• This allows you to manage the amounts that are the oldest and

respond to the management of overdue accounts with full information

In this case we can see that 60 days overdue for Buddy’s Builders is a potential

problem. We might choose to look at the history for this business, if Buddy's

builders has a poor history of paying we may need to review the credit terms we

allow them to access.

Accounts receivable schedule as at 30 September 20XX

Customer Total Current 30 days 60 days 90 days Johns factory $1,081.00 $1,081.00 Smith Builders $4,400.00 $1,900.00 $2,500.00 Buddy builders $68,811.00 $3,811.00 $65,000.00 Total accounts receivable $74,292.00 $6,792.00 $- $65,000.00 $2,500.00

OUTSTANDING ACCOUNTS

Identify how long an account has been outstanding so the accounts receivable manager

can determine who is not adhering to the agreed terms of credit.

• Ageing a debtor’s statements separates total amounts owed into the length of time

the invoices have been outstanding

• If you have a clear agreement with your customer and they can see their account is

or isn’t within trading terms they will need to deal with the payment or you will be

within your rights to pursue the matter further

On the schedule on the previous slide we can see:

• A 90 day invoice = $2 500, and a 60 day invoice = $65 000

• The total amount owed is $74 292.00. There needs to be work on collecting the

money from the 90 and 60 day customers

Bookkeeping staff are responsible to prepare ageing summaries for their managers. In

this way the accounts are managed and there are less surprises for the business.

OUTSTANDING ACCOUNTS

If you worked for the business with an outstanding account like

Buddy's builders you would need to:

• Prepare the ageing summary to accurately demonstrate the

amounts and age of outstanding accounts

• Arrange a meeting to discuss the ageing report with them

• Devise a strategy to collect the outstanding accounts

• The enact the plan as discussed

• Keep notes on each stage to keep all stakeholders informed of the

stages of collection

It is important to formulate a plan and to follow the credit terms set

down in agreement with your customer.

CREDIT TERMSThe ‘terms of credit’ are the payment conditions an organisation arranges

with its customers.

They also include the amount of credit a customer can access. Organisations

should be very diligent with credit limits and making sure that they are not

abused or exceeded. Credit terms should be evaluated annually at a

minimum.

Business needs to know:

• Who makes payments on time, in full, and correctly

• Who makes payments when they feel like it, pay what they think is

acceptable or may choose not to pay at all until significant warning and

threats have to be provided

Review also provides the opportunity to obtain feedback from customers.

Feedback is important to make sure an organisation is satisfying customer

needs and that they understand and issues or concerns.

CORRECTIVE ACTION FOR CREDIT TERMS

A plan for corrective action must be adhered to and be standard for

everyone. Policies that could be used include:

• Contact debtor via letter, phone, email or face-to-face

• Suspend or cancel credit terms

• Explain they are in breach of credit agreement

• Make arrangement to try and help settle account

• Stop further credit until all overdue amounts are paid

• Place customer on cash-sales terms

• Charge late fees on all overdue amounts

• Refer to a debt collection agency

CORRECTIVE ACTION FOR CREDIT TERMS

Other ways to ensure payment are:

• Implementing a cash on delivery policy where payment must be

provided before goods or services are provided

• Cancelling all credit arrangements with the customer

Settle the problem in another way such as:

Organisational credit policy should be reflected in the credit terms for

customers of the business. Credit policy should be reviewed and

maintained for maximum benefit for all concerned.

Having customer pay off debt in small, regular

payments

Refer matter to collection

agency

Return goods

delivered

Organisation receives goods or

services from customer for

payment

PRESENTATION OBJECTIVES

Now that you have completed this presentation, you will be able to:

• Follow up outstanding accounts

• Maintain the accounts receivable ledger system to monitor the

credit position

• Conduct an aged analysis of accounts receivable

• Identify outstanding accounts

• Determine collection procedures

• Report and follow up outstanding accounts

• Monitor and review credit terms based on credit policy