Accounts Payables and Receivables (AR/AP)

Accounts Payable is the money owed by a business to its suppliers for purchase/procurement of Goods/Services/Assets. Accounts Receivable is the money owed to a business by its customers.

Accounts Payable

Accounts Payable (AP) Process could become complex and time consuming which not only creates problem with the vendors and also could affect cash flow management. The challenges/issues could be largely grouped into the following:

1. Managing Supplier Details – Bank Details, Payment Terms etc.

2. Maintaining the Flow/Trail – from Purchase Order to Invoice to Receipt of Goods/Services to Payment

3. Taxes – Tax Deduction/Collection at Source (TDS/TCS), GST (availing timely Input Tax Credits)

While Automation could resolve some of the issues and there could be many solutions available off the shelf, the business has to develop a good understanding of the process before trying to find solutions to the challenges and problems at hand.

Accounts Payable itself is a part of the Procure 2 Pay (P2P) Process which starts with Identification of Requirements for the Business and ends with Payment to the Supplier.

Accounts Receivables

Accounts Receivables (AR), often referred as Receivables/Debtors is the money due from the customers. It is one of the important indicators of how the business performs and is a critical component of cash flow management.

Like AP, AR also has challenges, here the most critical challenge is to manage the collection cycle by regular follow ups to collect money from the customers. The follow up requires resources which costs the business, need a good understanding of the overall process would help a long way in identifying the pain points and provide proper solutions.

Credit Management is a critical step where the business assesses the credit worthiness of customers and the risks involved in the business. Effective management of credit risk could help the business in better collection and thereby better cashflow management.

Both Accounts Receivables and Payables are extremely important and those who manage the business should keep a close eye as it will help in managing the cash flow and smooth running of the business