Accounts Receivable
Money owed to a business by its customers for goods or services delivered but not yet paid for.
Accounts receivable (AR) represents the outstanding invoices a company has sent to customers who have not yet paid. It is classified as a current asset on the balance sheet because it represents cash the business expects to collect in the near future, usually within 30 to 90 days. Monitoring AR aging reports helps identify slow-paying customers before bad debt becomes an issue.
Example
A web design agency completes a $5,000 project and sends an invoice with Net 30 terms—until the client pays, that $5,000 sits in accounts receivable as an asset.
Why It Matters for Your Business
High AR balances mean your cash is tied up in unpaid invoices rather than available to cover expenses, so understanding AR helps you set better credit policies.
Practical Tips
- •Send invoices immediately upon delivery to start the payment clock sooner.
- •Offer small discounts (like 2/10 Net 30) to incentivize early payment.
- •Automate follow-up emails for invoices approaching their due date.
Related Terms
More Accounting Terms
Accounts Payable
Money owed by a business to its suppliers or creditors for goods or services received but not yet paid for.
Accrual Accounting
An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.
Asset
Any resource owned by a business that has economic value and can provide future benefits.
Balance Sheet
A financial statement showing assets, liabilities, and equity at a specific point in time.
Bookkeeping
The process of recording daily financial transactions including sales, purchases, payments, and receipts.
Related Financial Guides & Resources
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