Accounts Receivable
Accounts receivable (AR) is the money owed to your business by customers who have received goods or services but haven't paid yet. It's listed as a current asset on your balance sheet because it represents cash you expect to collect soon.
Accounts Receivable Definition
Accounts receivable (AR) is the money owed to your business by customers who have received goods or services but haven't paid yet. It's listed as a current asset on your balance sheet because it represents cash you expect to collect soon.
Accounts Receivable in Practice
A freelance designer completes a $5,000 website project and invoices the client with net-30 payment terms. That $5,000 sits in accounts receivable until the client pays. The designer tracks AR to know how much cash is coming in and when.
Why It Matters
Healthy accounts receivable means healthy cash flow. If customers consistently pay late, you might struggle to cover payroll, rent, or vendor bills — even if your business is technically profitable on paper.
Smart AR management includes clear payment terms, timely invoicing, and follow-up on overdue accounts. Many businesses offer small discounts for early payment to speed up collections.
FAQ
Q: What happens when a customer never pays?
A: Unpaid receivables eventually become bad debt. You can write them off as a business expense, but it's lost revenue you can't recover.
Related Terms
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Related Terms
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