Accounts receivable and payable ensure the flow of funds into a business for running operations successfully with profit. This makes it important for businesses to stay on top of payables and receivables to manage their cash flow efficiently. Proper management of these accounts allows businesses to incentivize customers to pay their bills faster, spot ways to get better terms with vendors and suppliers, and make a budget for upcoming bills. This article answers the question of what is the difference between accounts receivable and accounts payable.
The Basics of Accounts Receivable and Accounts Payable
Accounts receivable (AR) is the amount owed to businesses by their customers. Receivables result from sales made on credit and represent a line of credit extended from the client to the customer. However, accounts payable are the amounts businesses owe to their creditors or suppliers. Payables are when business purchases are made on credit, or to rephrase, the money that businesses owe to third parties.
Key Differences Between Accounts Payable and Accounts Receivable
The simplest way to differentiate between accounts receivable and accounts payable is by defining them as two sides of the same coin. The key points that answer what is the difference between accounts receivable and accounts payable are
- Accounts receivables are considered assets for businesses because they are directly proportional to receiving money for business operations. On the contrary, accounts payable are considered liabilities because they need businesses to pay out amounts within a certain timeline.
- Receivables may be offset by an allowance for doubtful accounts, however, there are no such offsets for accounts payable.
- Receivables usually involve only a single trade receivables account and a non-trade receivable account. In the case of payable accounts, they can be comprised of many more accounts including income taxes payable, interest payable, sales taxes payable, and trade payables.
The importance of AR cannot be understated in the revenue streams for businesses, and proper management of AR can lead to a gross positive profit. Partnering with an experienced debt collection agency can achieve this for businesses.
First Credit Services is a debt collection agency and a BPO company with over 25 years of experience in the industry. We value the importance of dealing with your customers in a manner that is beneficial to the brand value of your organization while boosting customer retention. All our clients have experienced a significant reduction in their accounts receivables days and an overall improvement in reimbursements. Partnering with us can enable you to free up resources, enhance customer engagement and improve revenues from outstanding debt like never before.
Contact us today to know how we can help.