Cash Vs. Accounts Receivable, What is a Better Option?
When many small business owners are given a choice, whether they want to opt for cash or accounts receivable, they go in favor with cash. The businesses which are related to consulting and medical practices don’t get paid immediately. Many a times while selling goods, you don’t get paid the full amount, at such times the importance of accounts receivable is realized. The main advantage that cash has over the accounts which provide ‘receiving’ facility is that the on-spot payment is a liquid asset and can be reimbursed immediately. If you are using the later facility, you need to wait for collections, which mostly take a lot of time. On the other hand, the decision to simply accept payments later may be prove beneficial in cultivating the economic strategy to extend the sales. Several miniature businesses in the United States produce alternative credit choices to manage their income by holding sensible customers. Bigger firms have the option of credit managers, who decide whether a particular individual or a business is worthy for the credit or not. Coming back to the organization, if it simply decides to accept money, it’s definitely not going to survive within the current economy. Most companies provide credit cards as a choice for regular payment which performs like a short-term asset. Companies like MasterCard, sometimes allow their clients to deposit the amount within days in their account. On a few occasions such techniques do prove a bit expensive, but then if they are not implemented, you may lose the whole business.
Cash and assets have their own monetary rates and reports. One relation is the due turnover — annual credit sales divided by assets. This report is commonly reviewed by management to spot slow payers or the people who pay late. They may choose whether to penalize them or no. Reports associated with money embrace check registers and bank reconciliation reports. Accounts receivable can be sold as a service to companies at a concession price, thus providing the organization with capital to run processes. This association is well-known by the term ‘factoring’ .It is widely used by infirmaries, which in general have to wait too long for their payments to be delivered. Many industries regard their receivables as buffer capital and charge interest to the parties who pay late. When a particular account becomes too old, the seller sometimes prefers to create a memo which would be receivable. Technically it is just a formal note, focusing on the interest and imbursement stipulations. A note receivable is mostly for a longer term.