The clients account corresponds to all the receivables from the sales by the company, meaning it is cash that is owed by its clients. It is more relevant in Business to Business (B2B) industries than in Business to Consumers (B2C). In most B2C sales, products are sold upon immediate payment, whereas in B2B a payment deadline may be agreed with the client, as purchase orders, invoices and other administrative procedures may have need to have to be fulfilled by the client organization prior to the payment of an invoice. Also, if the contracted work extends for a long period of time, it is common to set up payment upon a specific planning or according to the completion of certain milestones.
There are several instruments to assess a company’s receivable in order to understand its receivables position:
- Days of accounts receivables: the average number of days it takes clients to pay their due, based on the period’s net return.
- Accounts receivables age analysis: a map that split clients receivables by the age of the debt, for instance:
- < 30 days.
- 30 < days < 60.
- 60 < days < 90.
- 90 < days < 120.
- 120 < days < 180.
- > 180 days.
Being owed to by clients implies an additional cash demand on the company, for it represents income whose economic benefits has not been received.
There are also situation in which clients are asked to prepay the goods or services. That situation corresponds to a liability of the company, as it received a payment without providing the economic benefit. It is not an asset account; it is a liability account and that is commonly presented on its own on the balance sheet or that is included in other accounts payables or other current liabilities.
CASFLO APP does not have a specific feature for prepayments, but you can do simulate it through the other current liabilities feature.