Accounts Receivable vs Credit Control (2024)

FAQs

What is accounts receivable and credit control? ›

Credit control. The process through which companies exert control over their accounts receivables, making sure invoices are sent on time, received payments are recovered and customers are chased for any outstanding balances.

Accounts receivable is money owed to a company by customers for goods or services delivered but not yet paid for. It's recorded as a debit entry in accounting as it increases assets. When a sale is made on credit, accounts receivable is debited and sales revenue is credited.

The fundamental difference between accounts receivable and a control account is that the term accounts receivable refers to the money owed to a company by its debtors, while a control account is a summary account that contains information about subsidiary ledgers such as accounts receivable, among others.

A Credit Manager works within an accounting department to help determine the credit risk and credit-worthiness of clients. An accounts receivable department (A/R) may divide responsibilities among the team to include credit managers, credit analysts, clerks, and collections specialists.

The first step of building an effective Accounts Receivable process is formalising a clear, internal credit control procedure. Here are the 4 most important cornerstones every credit control or 'accounts receivable' procedure needs.

Credit control might also be called credit management, depending on the scenario.

According to US GAAP, the company's accounts receivable balance must be stated at “net realizable value”. In basic terms, this just means that the accounts receivable balance presented in the company's financial statements must be equal to the amount of cash they expect to collect from customers.

The key role of an employee who works as an Accounts Receivable is to ensure their company receives payments for goods and services, and records these transactions accordingly. An Accounts Receivable job description will include securing revenue by verifying and posting receipts, and resolving any discrepancies.

Accounts receivable refer to the money a company's customers owe for goods or services they have received but not yet paid for. For example, when customers purchase products on credit, the amount owed gets added to the accounts receivable. It's an obligation created through a business transaction.

The types of control accounts include debtors control accounts, creditors control accounts, and stock control accounts. These forms of control accounts are used to summarize the business within the general ledger.

What is the role of an accounts receivable controller? ›

The role holder is responsible for administering, managing, and supporting the delivery of day-to-day financial transactions, accounting movements and amendments related to the Accounts Receivable functions including staff and MP receivables, credit control functions, treasury tasks and financial accounting activities.

The Receivables Ledger control account (RLCA)

The RLCA records the total amount owed to the business by credit customers. This is an asset of the business which means that it will be a debit balance. ► New credit sales made will further increase the balance on the RLCA so will be a debit entry.

Typical accounts receivable analyst duties:

Monitoring customer account details for nonpayments, delayed payments, and irregularities. Generating and sending out invoices. Performing account reconciliations. Following up on, collecting, and allocating payments. Reviewing AR aging to ensure compliance.

As depicted in the table, assets, which include accounts receivable, increase on the debit side and decrease on the credit side. This conforms to the accounting equation (Assets = Liabilities + Equity), ensuring that every financial transaction maintains equilibrium within the business's financial statements.

Definition of credit control

Credit control is the practice of making sure your customers don't take too long to pay you. When you send an invoice, you should set 'payment terms' for your customers on the invoice. These are the number of days you will allow them to pay your invoices.

What is credit control? Credit control is the process of checking customers or suppliers to determine their credit 'worthiness' i.e. whether they're likely to pay you on time.

The day-to-day duties of the Credit Controller are varied and include managing the debts of creditors, ensuring timely payments are made, processing incoming funds, reconciling invoices, resolving account queries and managing debt recovery.