On Account
Candlefocus EditorWhen a purchase is made on account, the account is typically credited by the merchant and the customer is expected to settle the balance at a later date. On account balances can be paid off using further credits, with money sent directly to the business, or money sent and applied to the customer’s account.
Credit and payment on account are integral components of the business cycle and enable businesses to manage their cash flow. This type of payment allows businesses to create an invoice and charge their customers even if they may not have the cash to pay upfront.
The terms of on account payments vary depending on the type of agreement between the customer and the business. Some businesses, such as utilities, schools or retailers, offer customers the option to pay monthly in instalments, while other businesses choose to impose a 30-day payment window. Most times, businesses will impose a late payment fee if the customer does not pay within the specified deadline.
In order to keep track of on account finances, businesses use accounting software, such as Quickbooks, to journal and update the payments against their accounts receivable ledger. This ledger is a written record of any transactions between the customer and the business, and includes the transaction amount, the customer’s payment method, and the due dates for payment of on account invoices.
It is also important for businesses to establish a company credit policy to outline the terms of payments and help keep customers from incurring late fees. This policy may include payment reminders, invoice tracking, and credit limits.
In summary, on account is a financial term used in accounting to note the partial payments or purchases made on credit that occur when either side enters into a contract-based agreement that involves delayed payment. This brings convenience and flexibility to businesses when it comes to cash flow management and allows customers to pay in instalments or on credit.