Notes

Managing Accounts Receivables - Part 7: Handling Accounts Receivables
What exactly are service companies? A service company doesn't sell products to make a profit; instead, it sells services to either clients or customers depending on the special expertise or field. Service businesses usually sell their services by charging hourly rates and per-project fees. Major examples of service businesses include financial planners, accountants, lawyers, and insurance agents.

How do service companies go about earning profits? They buy inventory, create an inventory management system, maintain inventories, manage stock levels, pay payrolls, process credit cards, pay taxes and deposits, and perform other financial transaction functions such as bill consolidation. They sell products or services on demand through their own stores or from independent vendors. Some service companies have gone out of business because they have overstocked their inventories, closed their offices, sold their products, or have gone bankrupt. Service companies seldom distribute their balances to their customers directly; instead, they use bill collection agencies to collect payments from customers who pay their bills in default.

Why do service companies still exist? Businesses and households often need assistance when they cannot do certain tasks on their own. They often have special needs, such as accounting or bookkeeping help. These companies purchase or rent inventory, develop an inventory management system, create accounts payable and receivable procedures, and set up an operational budget. Many service companies also help individuals or businesses prepare their annual tax return, process payments, or make other necessary financial transactions. Some sell advertising space or inventory, while others manage payroll, prepare employee time sheets, keep records of hours worked or received, and perform other accounting functions.

When should I consider opening a service income account? Service income accounts allow service companies to increase their cash flow without increasing their gross receipts. Accounts receivable and accounts payable are traditionally managed by a company's cashier, while manufacturing and trade credit sales are typically handled by a company's warehouse manager, material manager, and factory director.

How should I handle my service income accounts receivables? digital to do is follow your service income accounts receivable procedures exactly. If digital don't, your customers will notice. For example, if you're a service income producer selling materials to your customer's factory, your customer may insist on receiving the materials before paying your invoice. To ensure a smooth transition for your customers, you must follow your material handling procedures exactly, including preparing your material lists and properly crediting your customers.

How should I track your accounts receivable balances? Your accounts payable and accounts receivable should be credited at the end of each billing cycle. This process should be documented in a written invoice that includes the amount owed to your retail partner, the date the merchandise must be collected, the date your retail partner receives payment, and the debit amount for this merchandise. This information should be used to create separate invoices for each customer, allowing your company to track your merchandise and payments accurately.

Can my service company Might have to re-credit a customer's account? Your service company might need to re-credit a customer's account if they determine that the retail partner provided incorrect, incomplete or outdated information about the order. The invoice that your retail partner sends you will include instructions to re-credit your account. If the invoice was sent to your company's warehouse, it could be accompanied by a collection agency. If you choose to work with your warehousing partner, you will want to make sure the warehouse has copies of all items your retail partner claims are in stock.

What should I do after a customer won't pay their invoice? digital might dispute the amount due, or request a payment plan. In any event, make sure you follow your invoicing procedures (including responding quickly to customer queries and collecting outstanding debts). If you receive a customer 'non-response' from your account, don't move forward with the customer. Instead, send digital describing your non-response and ask them to return to your company with proof that they will pay the debt within the timeframe agreed upon.
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