What is Accounts Receivable?
Accounts Receivable (AR) is the short-term asset a business records when it delivers goods or services to a customer on credit, before the customer has paid. It represents money owed — typically due within 30 to 90 days — and appears on the balance sheet under current assets. Effective AR management is the single biggest lever on a small business’s cash flow.
When you issue a sales invoice on credit terms, you debit Accounts Receivable and credit Sales Revenue. When the customer pays, you debit Cash and credit Accounts Receivable. In the gap between those two entries — often 30, 45, or 60 days — you are effectively financing your customer’s purchase. The longer that gap stretches, the more working capital is tied up in unpaid invoices rather than available to pay suppliers, rent, or payroll.
AR aging reports break the outstanding balance into buckets (current, 1–30, 31–60, 60+ days overdue) so you can see which customers are slipping and chase them systematically. The practices that move the needle most are: clear payment terms stated on every invoice, invoicing immediately after delivery rather than at month-end, offering a small early-payment discount, and following up the day a payment is late rather than waiting. Businesses that automate reminders and statements see overdue balances drop substantially.
Example
A graphic-design studio invoices a client €4,800 on 30-day terms the day the work is delivered. The bookkeeper debits Accounts Receivable and credits Sales. Twenty-eight days later, before the due date, a gentle automated reminder goes out and the client pays on day 30 — the studio never carries the invoice into overdue and its cash flow stays on schedule.
Questions
Is Accounts Receivable an asset or a liability?
Accounts Receivable is an asset — specifically a current asset — because it represents money that customers owe you and that you expect to convert to cash within a year. Liabilities are what you owe; receivables are what is owed to you.
What is a good Accounts Receivable turnover ratio?
A healthy AR turnover ratio for most small businesses means collecting the average invoice within your stated payment terms — typically 30 to 45 days. If your Days Sales Outstanding (DSO) is creeping past your terms, your AR process needs tightening: invoice faster, chase sooner, and consider early-payment incentives.