Accounts Receivable
Accounts Receivable (AR) is the money customers owe a company for goods or services they've received but not yet paid for. It sits on the balance sheet as a current asset, and the AR function is the work of invoicing customers, tracking what's owed, and collecting it before it goes stale.
How does the Accounts Receivable process work?
AR is the mirror image of Accounts Payable: instead of paying bills, you're getting paid. The cycle runs from the moment a sale is made to the moment cash lands in the bank. The steps are fairly universal:
- Invoice the customer: Once goods or services are delivered, the company bills the customer with clear terms.
- Record the receivable: The amount owed is booked to the General Ledger as an asset.
- Track what's outstanding: Open invoices are monitored, usually with an aging report that groups them by how overdue they are.
- Collect: The company follows up on unpaid invoices and applies incoming payments.
- Reconcile: Payments received are matched against invoices to confirm the books are accurate.
Accounts Receivable vs. Accounts Payable: what's the difference?
Accounts Receivable is money owed to you – an asset. Accounts Payable is money you owe – a liability. AR tracks cash coming in; AP tracks cash going out.
The gap between the two is where cash flow lives. If you're paying vendors faster than customers are paying you, cash gets tight even when the business is profitable on paper. Managing that timing is one of the quieter but more important jobs in finance.
Why does Accounts Receivable matter?
A sale isn't really complete until the cash arrives. AR is what turns revenue on paper into money in the bank, and letting it slip is one of the most common ways otherwise healthy companies run into cash crunches.
The key metric here is days sales outstanding (DSO) – the average time it takes to collect after a sale. A rising DSO is an early warning sign, either of collection problems or of customers in trouble. Staying on top of it protects the company's runway and its relationships at the same time.
Who handles Accounts Receivable?
In smaller companies, AR often sits with an AP/AR Specialist or a Staff Accountant who owns both sides of the ledger. As the business scales – more customers, more complex billing, more retail or platform partners – AR frequently becomes its own role, reporting to the Accounting Manager or Controller.
It's also a role where judgment increasingly matters more than mechanics. Automation can generate invoices and flag overdue accounts, but deciding how to handle a disputed charge, when to escalate a collection, or how to manage a key customer relationship still takes a person. Someone has to review what the system surfaces and make the call, and that's where a strong AR hire earns their keep.