Accounts Receivable (A/R)

Accounts Receivable (A/R) — the amount that your clients owe your business when they purchase on credit. There are also accounts payable (A/P), which are the amount that you owe as a business to your creditors. As the operations grow, usually A/R become a job for a separate accountant.

What qualifies as A/R?

As soon as you issue an invoice for your product or service and before it gets paid, this amount becomes an accounts receivable. It is an enforceable obligation by your clients to pay their obligations. It gets recorded in a balance sheet of a company as an asset. Depending on the payment terms, the amount and the timeframe may vary, for example, if your contract specification includes discounts for early payments or fines for being late.

What you need to know about Accounts Receivable (A/R)

The timeframe for payment that you allow for your customers is an important characteristic of Accounts receivable that affects your business. An evaluation called Age Analysis lists clients and assets starting with the ones that process invoices immediately and ending with the accounts that enjoy the longest grace periods. Based on the balance between fast and slow creditors, your cashflow allows for more or less flexible company management.

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