Accounts receivable and accounts payable

• Accounts receivable: money owed to you, and therefore an asset owned by the business
• Accounts Payable: Money you owe, i.e., a debt (a liability)
• The aging report shows which invoices are overdue and how long they’ve been outstanding
• The average collection period measures the number of days it takes your customers to pay: the shorter it is, the more breathing room your cash flow has
• Keeping a close eye on them directly protects your cash flow (the money in your account)

A business can show a healthy profit on paper and still be short on cash in the bank: it’s almost always a matter of overdue accounts receivable. Here’s a concrete example: You invoice $10,000 for work completed, but the customer pays in 60 days, while you have to pay your employees and suppliers this week. During those 60 days, you’re financing your customer interest-free with your own money. Conversely, managing your accounts payable effectively (by taking advantage of the payment terms you’re granted) gives you some breathing room without straining your relationships. A simple routine helps: review your list of outstanding receivables every week, follow up early, and invoice as soon as the work is delivered. These amounts pass through your general ledger and have a direct impact on your break-even point, because a sale that looks profitable on paper doesn’t actually generate any revenue until the payment is received. The BDC provides detailed, practical methods for speeding up collections. Bankeo connects you, for free, with a vetted accountant who will set up this tracking system, and we’ll be there for you every step of the way.

Accounts receivable, accounts payable: What are they, exactly?

Accounts receivable are the invoices you’ve sent but haven’t been paid yet, money that’s owed to you. Accounts payable are the invoices you’ve received but haven’t paid yet, money you owe. Together, these two lists show how much money will soon be coming in and going out.

Why is my business profitable but still struggling financially?

Profit is recognized when you issue an invoice, but the money doesn’t come in until the customer pays. If your customers pay within 60 days while you pay your suppliers within 30 days, you’re financing the gap with your own money. The solution: clear payment terms, prompt invoicing, and regular follow-ups.

How can I better manage my accounts receivable?

Invoice as soon as the work is delivered, offer electronic payment, include your payment terms in the contract, and follow up without hesitation at the first sign of a delay; an upfront deposit also helps. A key tool: the aging report, a table that categorizes your unpaid invoices by age (current, 30, 60, 90 days, and older) so you can see which ones to follow up on first. Bankeo will connect you, at no cost to you, with a vetted accountant who will implement these best practices and effective follow-up procedures, and we’ll be right there with you every step of the way.