Accounts Receivable (AR) is an important aspect of any business’s financial operations, and Small to Medium Enterprises (SMEs) in Singapore are no exception. The AR department is responsible for managing and collecting outstanding payments from customers or clients. In this blog, we will explore the functions of an AR department in an SME in Singapore and the benefits of outsourcing this vital function.
The Accounts Receivables Functions of an Accounting Department
Billing and Invoicing
The AR department is responsible for creating and sending invoices to customers for goods or services rendered. This may be done manually or using accounting software. It is important that all invoices are accurate and contain the correct billing information, such as the customer’s name, contact information, and payment terms.
Credit Management
The AR department should have a system in place to manage the creditworthiness of customers, such as running credit checks and setting credit limits. This helps to minimize the risk of bad debts and ensures that the SME is paid on time.
Payment Processing and Collections
Once an invoice is sent, the AR department is responsible for tracking payments and following up on any overdue invoices. This involves sending reminders, making phone calls, and initiating legal action if necessary. The goal is to collect outstanding payments as quickly as possible to ensure the SME’s cash flow remains healthy.
Reporting and Analysis
The AR department should provide regular financial reports to senior management, such as aging reports, cash flow projections, and revenue forecasts. This helps the SME to make informed financial decisions and identify areas for improvement.
Bad Debt Management and Write-offs
Occasionally, customers may default on payment, leading to bad debt. The AR department is responsible for managing bad debt, including calculating and recording write-offs. This function helps to minimize the impact of bad debt on the business’s finances.
GST Management
Depending on the business’s location, the AR department may be responsible for managing GST payments. This function involves tracking the amount of tax payable and ensuring timely payment to the tax authorities.
Revenue Recognition
The AR department is also responsible for recognizing revenue from sales, which involves determining when revenue is earned and recording it in the business’s financial records. Proper revenue recognition is crucial to maintaining accurate financial records and complying with accounting standards.
Benefits of Outsourcing Accounts Receivable
While the functions of an AR department are vital to the success of an SME, managing this function in-house can be costly and time-consuming. Outsourcing AR to a reliable third-party provider can offer many benefits, including:
Cost Savings
Outsourcing AR can reduce overhead costs, as the SME does not have to pay for salaries, benefits, and office space for an in-house staff.
Expertise
Outsourcing AR to a company specializing in this field ensures that the SME benefits from the expertise of trained professionals with specialized knowledge and experience.
Time Savings
An outsourced AR provider is dedicated to managing this function, which allows SMEs to focus on their core business operations.
Scalability
Outsourced AR providers can adjust staffing levels to meet fluctuations in demand, such as during peak seasons or as the business grows.
Conclusion
The AR department is an essential function of an SME’s financial operations in Singapore. However, managing this function in-house can be costly and time-consuming. Outsourcing AR provides many benefits, including cost savings, expertise, efficiency, and scalability. By outsourcing AR, SMEs can focus on their core business operations while leaving the financial management to a trusted and experienced third-party provider.