Accounts Receivable
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Accounts receivable (AR) is the money owed to a business by its customers for goods or services that have been delivered but not yet paid for. It is recorded as a current asset on the balance sheet and represents expected future cash inflows. Keeping AR under control is critical for maintaining a healthy cash flow.
In depth
When a business provides goods or services on credit, it creates an accounts receivable entry for the amount owed. The faster a business collects its receivables, the more cash it has available for operations and growth. Slow collections can create a cash flow gap — a business may look profitable on paper but struggle to pay its own bills if customers aren't paying on time.
Businesses track AR aging reports to monitor how long invoices have been outstanding and identify overdue accounts. Uncollected receivables that are deemed unrecoverable are written off as bad debt, which directly impacts profitability.