Accounts Receivable refers to the outstanding payments a business is owed by its customers for goods or services delivered on credit. In simple terms, it is the money that clients are yet to pay but is legally owed to the business. These receivables are recorded as assets on a company’s balance sheet because they represent future cash inflows. It is a short-term asset that reflects the company’s right to collect cash from its customers within a specific period, usually 30 to 90 days.
Importance of Accounts Receivable Management
Efficient management of accounts receivable is vital for any business because:
- Cash Flow Stability – Timely collection ensures a steady flow of working capital.
- Business Growth – Healthy receivables management provides liquidity for expansion and investments.
- Reduced Bad Debts – Proper monitoring minimizes the risk of uncollectible accounts.
- Customer Relationship – A structured process maintains trust and professionalism in client dealings.
- Financial Health – Strong receivable turnover is a sign of a company’s operational efficiency.
Key Points About Accounts Receivable
- AR is recorded as an asset on the balance sheet.
- It represents money owed by customers after a credit sale.
- The collection period (credit terms) typically ranges from 30 to 90 days.
- Delayed payments may affect cash flow and profitability.
- Strong AR management requires invoicing accuracy, follow-ups, and credit policies.
