Question

Shelly is having to review her A/R for her practice. She has a patient who earlier in the year was written off as a bad debt. That patient has now paid on the bad debt and she now has to record it. Shelly wants to minimize these types of transactions and is looking into better ways the company can perform direct write-offs.

1. Share and describe some ideas Shelly can use to minimize these types of transactions.

2.Describe some advantages and disadvantages of making improvements to your accounts receivable.

Considering the need to plan for the operating cash needs of the practice, discuss how your plan could improve on the collections process.

Answer 1

1. Share and describe some ideas Shelly can use to minimize these types of transactions.

The best and most suggested way to minimize these transactions is to create a provision for bad debts.

Move the bad and doubtful debts to provision for bad debts account and keep it there for a period of time until we are sure that we cant collect it. We can move the balance from the provision account and record these transactions if we could collect these bad debts in the future. We can write off the uncollectable debts from provision account once we are 100% sure that we cant collect them.

2. Describe some advantages and disadvantages of making improvements to your accounts receivable.

Managing our accounts receivables effectively is one of the important tasks of an organization. The main objective of a business is to make profits. The best way to do this would be increasing sales. Offering credit sales are one of the best ways to increase sales hence managing accounts receivable efficiently.

Advantages

1. It will increase the asset of an organization.

2. It helps us to reduce bad and uncollectable debts.

3. It will increase the cash flow of an organization.

4. It helps us to identify the right customers from the market to do business.

5. Helps us to track uncollectable receivables.

Disadvantages

1. It is cost effective.

2. Provision of bad debts reduce the assets of an organization.

Considering the need to plan for the operating cash needs of the practice, discuss how your plan could improve on the collections process.

Give rating to all customers on the basis of prompt payment and delay. It will help us to identify the right customer to do business and provide more credit facility. It will increase sales and reduce bad debts. We should stop proving credit facilities to the low rated customer who is not making prompt payments.