Accounts Receivable

What is accounts receivable?

Accounts receivable (often shortened to A/R or AR) is the money your customers owe you for work you've already completed. When you send an invoice and the client hasn't paid yet, that amount becomes part of your accounts receivable.

Think of it as a running tab of what's owed to your business. It's considered an asset on your balance sheet because it represents money you're entitled to collect.

Why it matters

Tracking accounts receivable is essential for understanding your business's financial health:

• Cash flow visibility — Know how much money is coming in and when
• Spotting slow payers — Identify clients who consistently pay late
• Financial planning — Make better decisions about expenses and growth
• Tax preparation — Accurately report income for tax purposes

Accounts receivable vs. accounts payable

Accounts receivable is money owed TO you. Accounts payable is money you owe to others (suppliers, vendors, contractors). One is an asset, the other is a liability. Keeping both organized helps you understand your true financial position.

Managing accounts receivable

The goal is to keep your accounts receivable low by collecting payments quickly. Invoice promptly after completing work, set clear payment terms, send reminders before and after due dates, and follow up on overdue invoices. The longer an invoice goes unpaid, the harder it becomes to collect.