Accounts receivable (AR) is money that customers owe a company for products or services that have been delivered but not yet paid for. It’s recorded as an asset on the balance sheet because it represents cash the company expects to collect.
When a business sends an invoice with payment terms, the amount becomes part of accounts receivable until the customer pays.
You’ll hear this when…
AR shows up in cash flow discussions, sales reporting, and financial health assessments. “Days Sales Outstanding” (DSO) measures how long it takes on average to collect receivables — a DSO of 45 means it typically takes 45 days from invoicing to payment.
The “AR team” chases unpaid invoices. If someone mentions “bad debt” or “writing off AR,” it means the company has given up on collecting certain receivables — the customer isn’t going to pay.
Why it matters
A company can be profitable on paper but still run out of cash if its receivables aren’t collected efficiently. High AR relative to revenue often means customers are slow to pay, which creates cash flow strain even when the business is technically earning money.
Source: FASB, ASC 310 — Receivables