Accounting

What is Accounts Receivable?

Accounts receivable (AR) is the money owed to your business by clients for goods or services delivered but not yet paid for. Learn how to manage AR, reduce overdue invoices, and improve cash flow.

Definition

Accounts receivable (AR) is the money owed to your business by clients for goods or services delivered but not yet paid for. Learn how to manage AR, reduce overdue invoices, and improve cash flow.

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Related Terms

Accounts Payable

Money your business owes to vendors and suppliers.

Accounting

Dunning

The process of communicating with clients to collect overdue payments.

Accounting

Net 30

Payment due within 30 days — the standard B2B payment term.

Accounting

Overdue Invoice

An invoice that has not been paid by its due date.

Accounting

Cash Flow

The movement of money into and out of your business.

Accounting

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Accounts receivable (AR) is the money your clients owe you for goods or services already delivered. It is recorded as a current asset on your balance sheet because it represents money you have a legal right to collect. When a client pays an invoice, the amount moves from accounts receivable (an asset) to cash — completing the transaction in your books.

How is accounts receivable different from revenue?

Revenue is earned when you deliver the service and issue the invoice. Accounts receivable is the open balance — revenue recognized but not yet collected. Once paid, the amount moves from AR (an asset) to cash on your balance sheet. Revenue tells you how much you earned; AR tells you how much you're still owed. Under cash-basis accounting, revenue is only recognized when payment is received, so AR tracking is less formal.

What is an accounts receivable aging report?

An aging report categorizes your outstanding invoices by how long they have been unpaid — typically in buckets of 0–30 days, 31–60 days, 61–90 days, and 90+ days. It helps you prioritize follow-up: invoices in the 31–60 day bucket need immediate attention; invoices in the 90+ day bucket are at high risk of becoming bad debt. Review your aging report weekly.

How do I reduce accounts receivable and get paid faster?

Key strategies: (1) Shorten payment terms — use Net 7 or Net 15 instead of Net 30; (2) Require a 25–50% deposit upfront on projects over $2,000; (3) Offer an early-pay discount (2% off if paid within 10 days); (4) Send automated payment reminders before and after the due date; (5) Follow up promptly — send an overdue notice the day after the due date, not two weeks later.

What is Accounts Receivable?

Definition

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