Name for me the most important functions of an A/R department.

How to Answer
The accounts receivable department is critical, for any company. The responsibilities of the department may
include:

- Customer credit limit applications/approvals

- Establishing payment terms with new customers
- Overviews of customer credit history
- Sending customer invoices and follow up on them
- Updating customer data in master files
- Follow up on late payments
- Communicating payment issues and flagging unstable accounts
- Creating invoices
- Receiving payments and applying them to the correct accounts

Show the interviewer that you take pride in your job, as an A/R Specialist. Discuss why you believe your role.

1. Can you tell me why Accounts Receivable is essential in a company's financial

management?
Answer: Accounts Receivable is crucial in a company's financial management because it helps to -
 Maintain Cash Flow: AR fuels cash flow like short-term customer loans. Timely collection keeps the money
flowing for operations, payments, and growth.
 Boosts Liquidity: Efficient AR management improves liquidity, providing a financial buffer for unexpected
expenses and smoother operations.
 Attracts Sales & Customer: Credit terms attract new customers and strengthen existing relationships.
Healthy AR shows investors good creditworthiness and potentially improves access to capital.
 Safeguards Financial Health: Good AR management minimises bad debt and financial risks. It allows for
better planning and driving financial well-being.

Can you explain the difference between Accounts Receivable and Accounts Payable?
Answer: Accounts Receivable (AR) represents money owed to the company by customers for goods or
services. Accounts Payable (AP) represents the company's obligations to pay suppliers or vendors for goods
or services received.
How do you handle overdue invoices or delinquent accounts?
Answer: Handling overdue invoices involves a structured approach. First, I would review the ageing report to
identify outstanding invoices. Then, I would contact customers with overdue balances to remind them of their
payment obligations. If necessary, I would work with them to set up payment plans. Consistent follow-ups and
clear communication are crucial to resolving delinquent accounts.

What key metrics or KPIs do you use to manage Accounts Receivable?

Answer: Key Performance Indicators (KPIs) for Accounts Receivable include -
Days Sales Outstanding (DSO):
 Measures the average number of days it takes to collect customer payments after the sale.
 Lower DSO indicates faster collections and improved cash flow.
 DSO can be compared to industry benchmarks to assess cash collection efficiency.
Ageing of Accounts Receivable:
 Categorises outstanding balances based on age (e.g., 0-30 days, 31-60 days, etc.).
 Identifies potential issues with late payments and allows for targeted collection efforts.
 Monitors trends in ageing to predict potential lousy debt and take preventive measures.
Average Collection Period:
 It is similar to DSO but calculated monthly or quarterly instead of daily.
 Provides a longer-term view of AR collection trends.
 Useful for evaluating the effectiveness of implemented collection strategies.
Collection Effectiveness Index (CEI):
 Measures the percentage of cash collected within a specific timeframe (e.g., within 30 days).
 Higher CEI indicates efficient collection efforts and minimises outstanding balances.
 Track CEI over time to monitor improvements and adjust collection strategies if needed.
Bad Debt Ratio:
 Shows the percentage of total AR written off as unrecoverable.
 A low bad debt ratio indicates strong credit risk management and prevents financial losses.
 Monitor trends and implement stricter credit policies if the bad debt ratio increases.
How do you ensure accuracy and completeness in accounts receivable records?

I ensure accuracy by reconciling AR records with sales and invoices regularly. To maintain completeness, I
verify that -
 All transactions are recorded
 Invoices are sent promptly
 All customer payments are properly documented.
Can you explain the concept of a credit limit?
Answer: A credit limit is the maximum amount of credit a customer can have outstanding with the company. It
is determined by the customer's creditworthiness, payment history, and financial stability. Monitoring credit
limits helps minimise the risk of non-payment or bad debts.
How would you handle a situation where a customer disputes an invoice?
Answer: When a customer disputes an invoice, I would promptly investigate the issue by reviewing the invoice
details, delivery records, and any relevant communication. I would then communicate with the customer to
understand their concerns and work towards a resolution, which may involve adjustments or issuing credit
notes if necessary.
Can you explain the concept of Days Sales Outstanding (DSO), and how do you calculate
it?
Answer: Days Sales Outstanding (DSO) measures the average number of days it takes for a company to
collect payments from its customers after a sale. It calculates the accounts receivable balance by the average
daily sales.
The formula is DSO = (Accounts Receivable ÷ Average Daily Sales).
Lower DSO indicates faster collections and better cash flow management.
Describe your experience with credit risk assessment. How do you determine credit limits
for customers?
Answer: Credit risk assessment involves evaluating a customer's creditworthiness to set appropriate limits. I
assess factors like the customer's financial statements, credit history, payment behaviour, and industry
conditions. I also consider credit reports and use scoring models to make informed decisions. It's essential to
balance risk with business growth.
 How do you handle international accounts receivable and currency fluctuations?
 Answer: Managing international accounts receivable requires understanding currency exchange risks. I
monitor currency fluctuations and may use hedging strategies or forward contracts to mitigate risks.
 Additionally, I ensure invoices are correctly denominated in the respective foreign currency and follow
international payment terms and regulations.
Explain the concept of the Allowance for Doubtful Accounts.
Answer: The Allowance for Doubtful Accounts is a contra-asset account that represents the portion of
accounts receivable expected to be uncollectible.
How do you handle the accounts receivable reconciliation and ensure accuracy in
financial reporting?
Gather Documents: The next step would be to keep all relevant documents on hand, including customer invoices,
payments received, credit memos, and adjustments.
 I will select a reconciliation method based on business needs and data complexity, such as ageing analysis or
account-by-account comparison.
a. Compare Subledger to General Ledger: Match customer balances in the accounts receivable sub-ledger with the
general ledger control account representing the total accounts receivable.
b. Analyse Differences: Investigate any discrepancies between the two totals. This could include:

 Missing payments: Check for unapplied payments, deposits in transit, or recording errors.
 Unrecorded invoices: Verify all invoices have been issued and recorded accurately.
 Write-offs and adjustments: Ensure write-offs and adjustments are appropriately authorised and documented.
a. Resolve Discrepancies: Make necessary adjustments to the sub-ledger or general ledger to reconcile the balances.
Document the reason and adjustments made for future reference.
b. Review Aging: Analyse the age of outstanding receivables and implement collection strategies for overdue accounts.
c. Perform Control Procedures: Implement internal controls such as dual signatures for write-offs, regular reviews of
reconciliations, and segregation of duties to prevent errors and fraud.
Ensuring Accuracy:
 Double-check calculations and data entries.
 I will use accounting software or specialised tools to automate reconciliation tasks and reduce manual errors.
What would you say are the most important characteristics of an accounts receivable
specialist?
Answer : Some of the most important characteristics of an accounts receivable specialist include:
 Attention to detail to ensure accuracy in financial records and payment processing.
 Good organisational skills
 Clear communication with customers and colleagues regarding payments and disputes.
 Ability to assess credit risk and identify issues in AR processes.
 Dedication to collecting outstanding payments and resolving discrepancies.
 Understanding of accounting standards and regulatory requirements.
 Ability to address and resolve issues related to late payments or disputes.
 Familiarity with accounting software and financial tools for efficient AR management.
What are the biggest challenges in accounts receivable?
 Some of the challenges faced in an accounts receivable career are - Dealing with late payments, resolving
discrepancies, navigating complex regulations, handling difficult customers, and maintaining accurate records are
common challenges. Efficiently balancing collections efforts with customer service is also crucial.

How to prepare an AR aging report?

Your AR aging report is an essential part of cash flow management for your business if you work with
credit sales. Fortunately, it’s a fairly simple financial statement to create—you can do it in just four steps:

1. Gather Unpaid Invoices

First, you’ll need to collect and organize all outstanding invoices from your accounts receivable. This
means any invoices with a balance, even if it’s just a partial balance.
2. Calculate the Number of Days Past Due

Next up, determine how many days past due each invoice is. For instance, if payment was due on
January 15th, and it’s now January 25th, you would mark it as being 10 days past due. You can record
this in a spreadsheet to help make the next step simpler.

3. Categorize Invoices

Next, organize all unpaid invoices for each customer according to your chosen aging schedule. Think of
each category as a ‘bucket’ to place your invoices into. The most common of these buckets would be
‘current’ (unpaid invoices that aren’t past due), ‘1-30 days past due,’ ‘31-60 days past due,’ and so on.
You will list the total amount for each bucket.

For example, say that you have a client with 2 outstanding invoices. One invoice is for $1,000 and is 14
days past due, and the other invoice is for $1,800 and is 21 days past due, you would write it as: ‘1-30
days past due: $2,800.’

4. Make an Aging Schedule

The final step is to repeat the process from step 3 for all of your clients having unpaid invoices on their
accounts. When this is done, you’ll be able to see each ‘bucket’ of overdue payments, giving you a much
clearer sense of how much you’re owed for each client and how overdue your accounts are in general.

Why Are AR Aging Reports Important?

AR aging reports are important because they ensure your business gets paid on time for the goods or
services you provide.

If your business, like many others, operates on credit, regular accounts receivable aging reports will help
you stay on top of late payments, helping to keep your cash flow steady and ensuring you steer clear of
financial difficulties.

There are many other benefits to regular AR aging reporting, including:

1. Staying In Touch with Overdue Accounts

Accounts receivable aging reports are a useful tool for ensuring you are regularly reviewing clients’
accounts and informing them about their outstanding balances, as well as giving you a chance to remind
them of your billing and collection process. The information from this report will help you create collection
letters, and a copy of the report itself might be attached as well.

2. Re-evaluating Practices and Policies

Your AR aging report is a useful tool when deciding whether to adjust your practices and policies for
selling and extending credit to clients, such as only accepting cash sales. These changes can be made
for all of your accounts or could be implemented for only high-risk customers who regularly struggle to
make payments on time.

3. Changing Supplier Payment Terms

Since overdue accounts hold up cash flow, the AR aging report can be used to make sure
your outstanding payments don’t create an issue with suppliers. Depending on your financial position,
you may request a credit balance extension or another payment term adjustment depending on how
many outstanding payments you’re waiting to receive.

4. Ending Client Relationships

If you’re looking to sever ties with a client who regularly fails to make their payments on time, a history of
outstanding receivables, indicated by AR aging reports, can act as evidence to show that you have a
good reason to do so.

5. Avoiding Bad Debts

Bad debts are outstanding credit sales accounts that the business will not be able to collect. While these
are a fact of life, businesses naturally want to avoid them whenever possible. Consistent accounts
receivable aging reporting will help you prevent an overdue credit balance from becoming a bad debt
expense.

6. Writing Off Bad Debts

If you do end up incurring a bad debt expense, you’ll need to provide evidence in the form of accounts
receivable aging reporting (along with other documentation). This is required to deduct it from your
income tax.

7. Setting Invoice Factoring Rates

If your business chooses to factor in outstanding invoices (i.e., sell debts from credit sales for someone
else to collect), AR aging reports are a necessary piece of documentation. These reports will help your
factoring company set the factoring rate.