If you’ve ever been involved in accounting practices, you may have heard of the terms accounts receivable and accounts payable. But many people make the mistake of confusing the two terms. Here we will explain them both, and also elucidate their important differences.
Accounts payable and accounts receivable are two types of accounts which are similar in the manner in which they’re recorded. However one account receives assets, while the other receives liabilities.
What is accounts receivable?
Accounts receivable (AR) is the name given to the accounting procedure responsible for chasing money owed to the company by its debtors on credit. It’s defined as any payment or proceeds owed to a business as a result of the goods or services it has provided. AR, as the title implies, refers to the fact that that the money has not yet been “received”. Receivables are classified as a current asset, while payables are classified as a current liability. An accounts receivable officer may be responsible for reconciling customer accounts, financial and sales reporting, and maintaining a company’s billing system. Credit control automation software can empower its users to automate invoice payment reminders with accounts receivable capabilities.
What is accounts payable?
We’re switching now to accounts payable (AP). This is a separate accounting process responsible for chasing money that the company owes to its creditors. It refers to any payment that a business owes to another business. Accounts payable means that the money is not yet been “paid” to whichever company is owed the payment.
So accounts payable is the money a company owes to another company at any time, while accounts receivable is the money that is owed to the company itself .
How to Manage Accounts Receivable and Accounts Payable
According to Bacs, nearly 50% of the UK's small to medium sized businesses are being paid late, with the average company waiting for £32,185 in overdue payments. 42% of these companies are spending up to four hours a week chasing the late payments they’re owed, which is costly. Credit control software powered by AI and machine learning can streamline finance and accounting processes, particularly when it comes to the management of accounts receivable and accounts payable. The software can automate efficient invoice processes for supplier accounts (accounts payable), and it can simultaneously manage customer accounts on the sales ledger, whilst chasing debtors using automated omni-channel communications. The software can also run detailed financial and management reports to analyse performance when it comes to AR and AP. The credit control AR and AP software reduces data entry and human error by leveraging the powers of artificial intelligence (AI) and machine learning.
Lateral Technology delivers fast, efficient credit control solutions through streamlined accounts payable and accounts receivable management tools. And its holistic single view of debt tool provides a 360 degree view of arrears — there’s nothing more powerful! Get in touch today and try a free demo.