You keep an eye on incoming payments, remind customers of outstanding invoices and send reminders if necessary. Without the right structure, this can quickly become confusing - and it is not always immediately apparent which invoices have already been paid. This makes it all the more important to maintain an overview so that your company’s liquidity remains secure.

With clearly structured accounts receivable accounting, you always know which payments have been received and which are still outstanding. It not only allows you to manage receivables efficiently, but also enables a smooth exchange of information between departments. This means that everyone in the company works with the same, up-to-date data and you always retain full control.

Accounts receivable

Accounts receivable accounting is a central component of financial accounting and deals with all business transactions relating to your company’s customers. The focus here is on receivables arising from the sale of goods or services. As soon as your company provides a service or sells a product, a receivable arises from the customer - the so-called debtor.

The task of accounts receivable accounting is to carefully record, monitor and manage these receivables. This includes not only the proper posting of outstanding invoices, but also the tracking of incoming payments. If a customer falls into arrears, accounts receivable accounting also takes over the dunning process and ensures that outstanding amounts are collected.

Accounts receivable accounting has four important areas of activity. In these, they deal extensively with the posting of receivables and credit notes from deliveries and services, the monitoring of individual incoming payments, dunning and debt collection and the actual creditworthiness of each customer in your company. This is also often referred to as debtor scoring. Accounts receivable accounting therefore ensures that everything from the actual invoicing to the receipt of payment is tracked and documented. In the event of non-payment, it initiates the dunning process and debt collection.

The customer becomes a debtor

If a customer purchases a product from your company, they will then receive an invoice. This is sent to the customer by Accounts Receivable Accounting. The customer now has the option of paying the invoice amount to your company within a certain predefined payment period, for example by direct debit or bank transfer. The invoice to the customer is also often referred to as a receivable (receivables management). The outstanding receivables are checked daily. This also serves as preparatory work for the dunning process.

In the dunning process, a distinction is made between extrajudicial and judicial dunning. In the extrajudicial dunning procedure, you first try to collect the invoice amount that the debtor (customer) still owes you internally. This is usually done with so-called dunning levels. With each dunning level, the customer is reminded again to settle the outstanding payment. Each company decides for itself how many dunning levels there are before a judicial dunning procedure is initiated.

In the best case scenario, the customer will also receive a friendly payment reminder before the extraordinary dunning process begins. The aim here is in particular not to weaken the existing business relationship and to settle the conflict on as “personal a level” as possible.

In the case of the judicial dunning procedure, the extraordinary dunning procedure has unfortunately not worked and the outstanding payment has still not been settled by the debtor (customer). In this case, a judicial reminder is considered. This is carried out by lawyers or debt collection agencies, but can also be carried out by your own accounts receivable department if the necessary knowledge is available. It is important that you are familiar with the processes of the courts and bailiffs.

However, debtor scoring is also particularly important in the company. This should provide relevant information about your customers’ actual willingness to pay. Explicit statements can be made about the payment history of each individual customer, e.g. about payment reliability or individual payment defaults. This makes it possible to identify customer insolvencies at an early stage and minimize the actual financial loss. In this case, the customer is simply blocked and no longer supplied with products or services until further notice.

In addition to all the points already mentioned, it is also particularly important to pass on information about outstanding payments. From this, decisions can be made in no time at all about possible upcoming investments and your own liquidity. If an increased number of payments are not made, it may not be possible to initiate new investments in your company. If, on the other hand, most of your receivables have been settled, your company will be liquid and nothing will stand in the way of further investments. The liquidity of a company therefore always depends on the outstanding or settled receivables.

The tasks of accounts receivable accounting go far beyond simply posting business transactions. They include all activities that are necessary to enable you to manage receivables from your customers transparently, secure incoming payments and avoid defaults. This includes, among other things

  • Creating and sending outgoing invoices
  • Posting of receivables from deliveries and services
  • Recording incoming payments
  • Monitoring of payments due and open items
  • Active receivables management to collect payments
  • Organization and implementation of dunning procedures
  • Creation and processing of credit notes
  • Reconciliation of accounts receivable to ensure correct postings Contact person for customers with questions about invoices and payments
  • Assessment and review of accounts receivable risk to avoid payment defaults

Not all customers always pay on time and some customers even deliberately do not pay their invoices. However, your accounts receivable department must be able to deal with this so-called debtor risk in the best possible way and be able to assess the payment options, which differ in terms of late payment, inability to pay and unwillingness to pay, as accurately as possible.

Accounts receivable risk](risk.jpg)

In the case of late payment, the customer (debtor) does not pay their invoice by the agreed payment deadline. In the case of insolvency, we are already talking about insolvency. In this case, your customer can no longer meet his payment obligations. In the case of unwillingness to pay, on the other hand, your customer refuses to pay and acts deliberately. You can only counteract this through proper scoring.

Scoring involves taking a close look at your customer. Past payments are listed in the actual debtor account of each individual customer and are included in the credit rating. Delayed payments in the past lead to your customer being rated lower in the scoring. This can also lead to the actual blocking or non-delivery of the debtor. Advance payment, for example, can help here. If, on the other hand, your customer has always paid all his invoices on time, he should have the best possible scoring in your accounts receivable.

Accounts payable is a sub-area of financial accounting and deals with a company’s liabilities to its suppliers and service providers - the so-called creditors. Whenever a company purchases goods or services and receives an invoice for them, a liability is created that is recorded and monitored in accounts payable.

Stable supplier relationships](suppliers.jpg)

The central tasks include recording and checking incoming invoices, posting these liabilities to the correct accounts and monitoring payment deadlines. The aim is to settle invoices on time, take advantage of discounts or rebates and at the same time maintain an overview of all outstanding payment obligations. Accounts payable accounting therefore makes a decisive contribution to ensuring financial order in the company and securing stable supplier relationships.

Accounts payable accounting covers all activities relating to the recording, administration and processing of liabilities to suppliers and service providers. In detail, it includes

  • Recording and checking invoices received
  • Account assignment and posting of invoices to the relevant accounts
  • Monitoring payment deadlines and settling outstanding invoices on time
  • Use of discounts and rebates to save costs
  • Management of credit notes and other corrections
  • Reconciliation and maintenance of vendor accounts Communication with suppliers regarding invoices or payments
  • Preparation of payment runs (e.g. transfers, direct debits)
  • Checking and evaluating liabilities in order to present the financial situation transparently

While accounts payable accounting records liabilities to suppliers, accounts receivable accounting monitors receivables from customers. The following comparison shows their tasks, differences and effects on the payment flow:

Accounts Payable Accounts Receivable
Definition Records all business transactions with suppliers (payables) Records all business transactions with customers (receivables)
Participants Suppliers / creditors Customers / debtors
Objective Control and management of payables to suppliers Control and management of receivables from customers
Main task - Check invoices, prepare payments, manage discounts and reminders Create invoices, monitor incoming payments, carry out dunning procedures
Impact on balance sheet Increase in liabilities Increase in receivables
Payment flow Expenses → Money leaves the company Income → Money flows into the company

Accounts receivable and accounts payable offer numerous advantages for companies, improving both financial stability and internal organization. One major advantage is the improvement in financial planning reliability. By systematically recording receivables and payables and calculating default risks, companies can plan their liquidity better and avoid unforeseen bottlenecks. At the same time, losses due to payment defaults can be significantly reduced, as outstanding items are actively monitored and reminders or collection measures are initiated if necessary.

The advantages of accounts receivable accounting

Accounting also provides a clear overview of all customers and suppliers, allowing processes to be designed more efficiently. For example, invoices and payments are clearly linked, which simplifies processes and reduces discrepancies. In addition, accounts receivable and accounts payable facilitate the procurement of information and the planning of business relationships. Companies can make targeted decisions based on the accounting data, for example about credit limits, payment terms or future investments with certain customers or suppliers.

Accounts receivable accounting forms the backbone of efficient financial accounting in every company. With the GDPR-compliant SeaTable software, you can map this area digitally, manage all relevant information centrally and thus significantly simplify the entire process from quotation preparation to receipt of payment. The free Template offers you table sheets for customers, products and offers as well as a special invoice sheet in which all important data is clearly arranged.

As soon as an offer is accepted by the customer, the corresponding information is automatically transferred to the invoice sheet. This allows invoices to be created with just a few clicks and sent directly to the customer. The payment status of each invoice can be viewed at any time so that accounting and sales always have an overview. In addition, incoming payments and reminders can be documented directly in the system, which speeds up processes and reduces errors. SeaTable therefore enables you to manage your accounts receivable in a transparent and time-saving manner without the need for expensive additional software. Register for free today and test the template.

What are debtors and creditors?

Debtors are a company’s customers who have outstanding invoices to pay, i.e. receivables. Creditors, on the other hand, are the suppliers or business partners to whom the company owes money, i.e. there are liabilities. Together, they form the basis for monitoring incoming and outgoing payments in the company.

What is the difference between accounts receivable and accounts payable?

Accounts receivable accounting records and monitors all receivables from customers - i.e. invoices that the company has issued and whose payment is still outstanding. Accounts payable, on the other hand, manages all liabilities to suppliers, i.e. invoices that the company has to pay. Accounts receivable accounting therefore looks at the money that comes in, while accounts payable accounting looks at the money that goes out.

Which software can be used to implement accounts payable and accounts receivable accounting?

With SeaTable, accounts receivable and accounts payable accounting can be implemented efficiently and flexibly - without any programming knowledge. SeaTable is a GDPR-compliant no-code platform that has been specially developed for the management and automation of business processes. It makes it possible to create individual accounting applications that are perfectly tailored to the needs of your company.

Do accounts receivable play a role in accounts payable accounting?

No, debtors do not play a role in accounts payable accounting. Accounts payable accounting focuses exclusively on suppliers and liabilities - in other words, who the company owes money to and when payments are due. Accounts receivable, on the other hand, are customers who owe the company money and are recorded in accounts receivable accounting.

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