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Which customers should be Accounts Receivable?

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Not every customer should be set up with an account or be allowed the privilege of paying for goods and services at a later time. To make it worth the time to set up the account, maintain it when sales and payments are made, and to cover billing costs, only those individuals and businesses which will be reliable repeat customers should be set up as accounts receivables. All others should be required to pay for goods and services at the point of sale.

Since allowing customers to pay at a later date is essentially offering them a line of credit, it would be wise to establish the limits of that privilege from the beginning. If there is a limit to the amount a customer can charge, or if there will be interest added to any unpaid monthly balances, those things should be made clear to the customer up front. At the same time, the customer must be made aware of when payment is expected and when the details of the billing cycle as it pertains to their account. Billing cycles are most often handled monthly, but it is also common for a line of credit to be due within a week or two.

Many businesses require a customer to establish themselves as repeat customers before being offered the option of paying for goods and services at a later time. However, those businesses have the right to offer that benefit to a customer at any time if they feel they will lose business to a competitor if they do not offer the option of paying later. Allowing a customer to buy now and pay later is definitely a benefit to them, and must be managed so that it does not become a liability to the seller.

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