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How to Analyze the Receivables and Payables Reports in an Accounting system?

Biplob Dev
Biplob is a marketing executive for SaaS & IT Solutions such as online accounting software, cloud payroll solutions, and ERP applications. He occasionally writes and loves to contribute to his blog.
Updated on ・6 min read

Are you a small and midsized business unable to afford a senior CFO? Do you feel handicapped at not being able to manage your finances due to lack of proper reporting? And is your accountant not maintaining your books of accounts properly?

A lot of small businesses really struggled to build and manage finances. So getting a grip on your finances is vitally important and potentially the only way to survive!

And in this article we have looked at ways to review your books of accounts to enable you to get a better grip on your business.

But before we get into this, one strong recommendation is to make sure you have an online accounting subscription to analyze your data.

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Being offline is honestly a no-go in today’s times and will make you severely handicapped.

Everything has moved online, branches to net banking, physical meetings to zoom and Google Meet, letters to emails, physical filing of returns to online IT returns.

So there is honestly no logical reason for your accounting to be offline. And while there are a lot of accounting systems on the marketplace, I would also advise you to look for scalable accounting software online so you can grow as your business grows.

Because that is how you can deep dive into your business to analyze your accounting reports anytime and anywhere.

Analyzing the Receivables and Payables Report in an accounting software

I have seen countless businesses not maintaining bill wise details and therefore have no clue about the aging of their receivables.

And this one single activity wherein you track all your receivables can really transform your business, and control cash flows to ensure all invoices and receipts are marked properly.

Having said that, I would also like to share something with you that I have personally experienced.

Recently I have came across a large manufacturing concern with whom we were discussing the implementation of online accounting systems.

They supply to some of the largest retailers and corporates in the country such as Dmart, Reliance, Spencers, Infosys, Wipro, etc.

And the manufacturer supplies to these companies on a pan India basis but they do not have any system in place to know at one go what are their total sales or receivables from various customers.

Additionally, even within the same branch, since every single person has the power to open a customer ledger, the same customer’s ledger has been opened multiple times and being used to record sales and receivables on an on-going basis.

And wherein they maintain their entire MIS reports (plain and simple accounting) on a parallel excel which they use to control their business.

Visualizing this I cannot emphasize how poorly this reflects the financial data management since the company is not even in a position to send a customer balance confirmation or reconcile the books on a regular basis.

In the same way, recording your payables is equally important since you need to know what your current liabilities are, you need to ensure that TDS is deducted properly and GST inputs are claimed.

Not recording payable also can lead to the expense being disallowed if TDS is not booked and the GST input not being claimed which is a further loss to your company.

Lot of companies just record the payment entries especially small organizations where the owner initiates the payments without bothering to check if the expense has been booked or not, and therefore it becomes a mad scramble during the time of the audit to look for these bills.

So a better solution is shift to an accounting system online, attach all your supporting documents to the respective entries and ensure that the person initiating the payment ensures that he checks the ledger balance on the app before initiating any vendor payment.

This small discipline shall go a long way in ensuring accurate representation in accounts and also give you a clear picture of your payables along with due dates.

Recording Customer Invoice to ensure Timely Collection

When you create the customer master, ensure you feed their GST details, PAN No, Address and most importantly the credit period you are extending the customer from the invoice date.

Ensure bill wise tracking is switched on – without this you cannot get an aging report.

While recording the invoice, make sure you are preparing the invoice promptly on the actual date with no delays so that the due date is calculated on the basis of the invoice date.

Some customers also calculate on the basis of the delivery date (in case of goods) if your software allows this, then that is an added bonus as it will allows you to record delivery date and generate bill wise outstanding basis that date.

While analyzing your receivable report, track invoices that are overdue first.

Ensure your accounting software has the facility to send an automated reminder to the customers informing that bills are overdue and they need to be cleared at the earliest.

Next, send a reminder to all customers that are due to pay in the next 3 days. This serves as a timely reminder to them to ensure that they pay on the due date.

It is the kind of system which mobile phone companies or electricity providers do i.e. a timely reminder to ensure that the client pays.

If the reminder can contain a payment link, then that is an added advantage. Additionally keep monitoring your aging report, create relevant buckets, most people like to use 0-30 days, 30-60 days, 60-90 days and greater than 90 days buckets, but depending on your business, this can be modified.

Your online accounting software must have the feature to customize this. It is quite a basic feature!

Recording Vendor Invoices to ensure Timely Payment

While creating a new Vendor, just like in case of the Customer, ensure all details – PAN No, GSTIN, Address are captured now itself along with the credit period you enjoy for payment of that invoice.

Always ensure bill wise tracking is switched on. Without this, you cannot understand the aging of your payables. Do not accept invoices which do not have the vendor’s PAN no. / GSTIN mentioned in case he is registered.

Prior to recording the invoice, please check that your company name and GST No. are accurately mentioned. Both of these are extremely important for claiming GST Input and Audit purposes.

When recording the expense, ensure the correct selection of expense head and treatment of TDS and GST is done. Recording the vendor invoice no. is important for reconciling GST returns and vendor ledgers in future.

Keep track of upcoming payments by checking the due bills report which should show you all due bills in the next 7 days / 14 days etc. as well as any bills that are overdue.

Following these simple processes will go a long way in keeping your books of accounts in proper shape and allow you to get far better control and grip over your business. Shift to a better online accounting software today it is more than worth it!

Conclusion:

So you have seen here we have examined a simple recording and analysis of your receivable and payable reports. This is the most critical report for any business as it helps a business plan and analyze their cash flows.

But often it is seen as one of the much neglected report and most people do not maintain this properly. So keep your accounting system configure the right way to ensure timely payments and receipts.

A combination of your receivables and payables ensures that you can keep track of your cashflows and also forecast them properly.
Therefore I would highly recommend you to shift your accounting activities online and remove the dependency of getting this information from your accountant.

Being online will also ensure that your accountant knows you have access to the books of accounts and therefore he will ensure that the books are up-to-date.

Moving your accounting system online is a definite plus and an added advantage for micro, small and medium enterprises. So it also necessary for your business to shift your business to cloud accounting software and systems to ensure that your reports are on real time.

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