What is an Accounts Receivable department?
Accounts receivable department (AR) is operating under the accounting department (Finance department) and it is the main revenue recording responsible department in the finance department. This department also called receipting department or receipting team as well, but they are not doing only the receipting task. They have various tasks depending on the size of the department and the company. Department size can be varying according to the size of the organization too. Accounts receivable head is reporting to head of finance normally.
Scope of the accounts Receivable department
Scope of the accounts receivable department is depending on the size and hierarchy of the company. Small companies may have only one person or one person for both accounts receivable and accounts payable like that. If the company is bigger, there can be 20 30 employees or many more. Accounts receivable department mainly responsible for 03 main tasks;
Invoicing
Account receivable team is responsible for invoicing the company’s sold product and services; this includes issuing Performa invoices, quotations as well. Accounts Receivable team will raise the invoices based on the given details by the operation departments via systems, mails or hard copies. Invoicing has a controlled procedure, since this is the revenue recording source for the company. Invoicing would be done according to the rate cards which confirmed earlier by the management of the company. Invoice normally issued with the sign of the head of accounts receivable or currently no need the signature, since invoices are issuing by the systems.
Receipting
Accounts receivable team is responsible for receipting the payments received from the customers. Normally the cashier from the accounts receivable team is doing the receipting. Cashier will get the payment by any method such as cash, card, check, direct payment and bar code payments. Cashier is responsible for issuing a receipt and he or she should maintain a better customer relationship too. Accounts receivable department is the only department which has a face to face or direct connection with the customers. When recording the receipt, the cash entry is paralleled recorded.
AR Reporting
Accounts receivable team is doing several reporting to the management periodically. Normally they show cash inflow, revenue reports and insights daily, weekly and monthly.
Hierarchy of the accounts Receivable department
Hierarchy of an accounts receivable department also depends on the size of the company. Below is an example of the accounts receivable department hierarchy.
Journal Entries associated with accounts receivable department (AR Entries)
There are 2 main journal entries for accounts receivable are as follow;
Invoicing
Debtor Receivable Ledger Dr
Revenue Ledger Cr
Receipting
Cash/Bank Ledger Dr
Debtors receivable Ledger Cr
Internal Controls
Management should implement tight and strict internal controls for accounts receivable, since this is the main cash inflow pipe line and the revenue recording section in the company. Accounts receivable department should implement proper processes to secure the customer’s trust and their money. If the cashier misses to receipt a payment done by a customer, customer has to face many difficulties while taking the service from the company. Customer may have to complain regarding the receipting process. If a proper controlling process has not been implemented, employees can do the frauds and errors. Normally companies implement internal controls in accounts receivable department such as;
- Issuing a original receipt
- Depositing cash collection daily
- Receipt cancellation should go through two levels
- Daily reporting the receipt count and amounts
- Bank Reconciliation
- Invoicing approval by two levels
New Trends in accounts receivable
Robot Receipting/Direct Receipting
Nowadays most of the companies are accepting the online payments for their products and services. As an example everyone is doing the mobile, cable TV payments online. Those payments are automatically settling the invoices and it happens through the system without human involvement. This has improved the quality and the accuracy of the receipting as we as in the invoicing.
Virtual/Invoicing Receipting
This method uses many businesses like insurance companies, law firms. They take the details from the customers like product and services details also they invoice or receipt the payments with some expert knowledge. There is no physical meeting with the customers and everything happens virtually via email or any other internet portals.
Shared Service Centers
Giant and multinational companies are practicing this method. According to this method companies are creating a sub company for the shared services like data entry. They pool the AR, AP, GL and other financial department functions are outsourced to this sub company. Then the all the operating entities are getting the service from the initiated company like receipting, invoicing, reporting. By this method companies are receiving many benefits such as;
- Low cost due to not having support service staff at the operating entity
- Knowledge hub at the shared service center
- Low risk of employee turnover
- Low cost of labor (If you start the company in a law income developing country)
- High supervision and high process development
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