What is Accounts Receivable?

Accounts receivable, often shortened to AR, is the total of invoices your customers have not yet paid. It appears as a current asset on the balance sheet because you expect to collect it, usually within weeks or months.

How it arises

When you invoice a customer under accrual accounting, you record revenue and a receivable. When the customer pays, cash increases and the receivable decreases. Under the cash method, unpaid invoices are tracked outside the profit and loss until paid.

Why it matters

A growing receivables balance can mean sales are growing, or that customers are paying more slowly. Either way, cash is tied up. The measure days sales outstanding shows how long, on average, customers take to pay.

Managing it

• Invoice promptly and clearly, with payment terms and methods
• Review an accounts receivable aging report weekly
• Follow up on overdue invoices on a fixed schedule
• Offer easy electronic payment options

Uncollectible balances

When an invoice will not be paid, it may be written off. Whether that write-off is tax deductible depends on your accounting method; see writing off bad debts.

For more detail, read our guide to accounts receivable for small businesses.

Related terms

• Accrual Accounting: Accrual accounting records income when it is earned and expenses when they are incurred, regardless of when cash moves.
• Accounts Receivable Aging: An accounts receivable aging report groups unpaid customer invoices by how long they have been outstanding.
• Balance Sheet: A balance sheet shows what a business owns, what it owes and the owners' equity at a specific date.

Browse more definitions in the small business glossary.