What is Accounts Receibable?
Accounts receivable is an asset on your balance sheet and represents the money you are owed. Discover how AR tracks customer invoices, impacts cash flow, and supports financial management.
Accounts Receivable (AR) refers to the money your clients owe you for a product or service that you offered but has not been paid yet.
It represents a current assent on your balance sheet and should be converted into cash within 30 to 90 days.
When your business issues an invoice to a client, the amount due is recorded under accounts receivable until the payment is collected.
AR is important when monitoring your cash flow to ensure you keep a healthy liquidity.
Effective AR management includes setting clear payment terms, sending timely reminders, and monitoring overdue accounts.
Accounts receivable directly impacts your company’s working capital.
A high level of receivables may indicate strong sales, but if collections are delayed, it can create cash flow problems. Conversely, efficient receivables management improves financial stability and reduces the risk of bad debt.
Accounting software, such as Eleven, automates AR tracking, integrating customer data, payment histories, and aging reports. These tools helps you identify overdue accounts and implement strategies such as discounts for early payments or stricter credit policies.
What is accounts receivable turnover?
Accounts receivable turnover is a financial ratio that measures how efficiently your company collects payments from clients or customers.
It shows how many times during a specific period (usually a year) a business converts its accounts receivable into cash.
The formula for AR turnover is:
Accounts Receivable Turnover = Net Credit Sales ÷ Average Accounts Receivable
A high turnover ratio indicates that you are collecting payments quickly and manage your credit effectively.
A low ratio suggests potential issues such as lenient credit policies or delayed collections.
Monitoring this ratio helps you evaluate your cash flow efficiency, identify collection bottlenecks, and adjust credit terms or billing processes accordingly.
Accounts receivable vs accounts payable
As mentioned, accounts receivable indicates the money you should be collecting by services you provided and appears as an asset on your balance sheet.
Whereas accounts payable is the money you owe to your suppliers or vendors and represents your current liability.
to put it in simple terms, AR is what others owe you, while AP is what you owe others.
Both are critical to understand your working capital and financial health.
Accounts Receivable Example
You own a marketing agency and have just completed a $10,000 project for a client, so you send an invoice with payment due in 30 days.
Until the client pays, the $10,000 appears as Accounts Receivable on your balance sheet.
Once payment is received, you will record cash and remove the receivable from your books.
How to Manage Accounts Receivable with Eleven
Eleven uses AI and bookkeeping tools to automate your AR management.
You can easily track invoices, identify overdue accounts, and forecast cash flow in real time.
Eleven offers:
- Automated invoice tracking
- Smart and customized reminders
- AI insights
- Integrated cash flow dashboard
Learn more with this video:
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