The work of any company is evaluated by a variety of indicators, and they all characterize various aspects of its activities. So, the volume of production shows the capacity of the enterprise, profitability - its economic efficiency, security with certain resources - stability and reliability of supplies. Accounts receivable and payable are important indicators of the financial health of the enterprise. We will talk about what they mean and how you can manage them in this article.
First of all, it is necessary to define such concepts as receivables and payables. These concepts in their economic sense are directly opposite. Accounts receivable reflects the amount owed to the company by its counterparties - buyers, suppliers, authorities and so on. Sometimes it happens that the debt of the counterparty represents some tangible assets that have already been paid but not yet delivered. Despite the fact that the real subject of debt is goods, their cash value is still displayed in the balance sheet.
Accounts payable is the amount that the enterprise itself owed to other business entities or government bodies. Thus, receivables and payables are, on the one hand, the opposite, and on the other hand, are closely interrelated concepts.
In general, the presence of debts is a normal and permissible phenomenon within certain limits. If debts exceed these limits, then a crisis is highly likely. If the acceptable thresholds are exceeded by the indicators of receivables, there may be problems with liquidity, and in the case of creditor, with the solvency of the enterprise.
Based on the foregoing, the most important task of financial management of an enterprise is the management of receivables and payables. This process is assigned to senior management in the field of finance. Its components are:
- accounting of receivables and payables,
- forecasting future debt indicators,
- setting maximum allowable amounts of debt,
- if necessary, taking measures to adjust indicators that do not meet management requirements.
Debt accounting is carried out in special balance sheet items, as well as in accounts. At the same time, payables are divided into entities to which the company owes money - suppliers, budget, customers, and so on. In the case of receivables, in addition to the breakdown by subjects, there is also a separation by the reliability of debtors, including a so-called reserve of doubtful obligations that may not be fulfilled by their carriers. Only after a certain amount of debt has been in such a reserve can it be written off as bad.
As for emergency measures to regulate debts, they can be different: for debtors - lawsuits, involvement of collection agencies, imposition of additional penalties on the debtor. In the case of accounts payable, most often the main regulatory measure will be raising additional funds to cover the debt or negotiating a review of the payment deadlines.
Unfortunately, it is the idea that accounts receivable and accounts payable is a normal occurrence that leads to the excessive carelessness of the financial managers of the enterprise. We hasten to warn readers from overly calm attitude to such obligations - many cases are known when they accumulated to enormous proportions and became the cause of enormous problems until the complete collapse of the enterprise.