Accounts receivable (AR) refers to the balance of money due to a company for goods or services delivered or used but not yet paid for by customers. It is an asset recorded on the balance sheet as a result of an unpaid sales transaction. The accounts receivable process involves customer onboarding, invoicing, collections, deductions, exception management, and finally, cash posting after the payment is collected.
AR is typically executed by generating an invoice and either mailing or electronically delivering it to the customer, who must pay it within an established timeframe, called credit terms or payment terms. Accounts receivable represents money owed by entities to the firm on the sale of products or services on credit. It is a line of credit extended by a company and normally has terms that require payments due within a relatively short period, typically ranging from a few days to a fiscal or calendar year.
AR is listed as a current asset on the balance sheet, meaning that the account balance is due from the debtor in one year or less. Payments of accounts receivable can cut a companys debt, reduce financing charges, and improve cash flow, which can be used to hike dividends, invest in Capex (capital expenditure), increase risk capital, or offer new goods and services.
