Accounts Receivable
Definition
Accounts receivable is the total amount of money owed to a business by customers for services already delivered but not yet paid.
What Accounts Receivable Means for Your Business
What it means
Accounts receivable, or AR, is the money that is legally yours but sitting in someone else's bank account. It shows up as an asset on the balance sheet but it does not pay bills until it clears.
Why it matters
High AR looks like revenue but feels like debt. Every dollar outstanding is a dollar you cannot use for payroll, parts, or payroll taxes. Managing AR is the difference between a healthy business and one always scrambling for cash.
How contractors use it
Finance pulls the AR aging report weekly, calls past-due customers, and tracks DSO against goal. Collection policies escalate from friendly reminders to formal demand letters to legal action.
Real-World Example
A commercial mechanical contractor had $580,000 in AR with 48 day DSO. Tightening collections to 32 day DSO freed $180,000 in cash flow and eliminated the need for a line of credit.
Related Terms
Days Sales Outstanding
Days sales outstanding, or DSO, is the average number of days it takes a business to collect payment after an invoice has been issued.
Invoice Aging
Invoice aging is a report that groups unpaid invoices by how many days they are past due, typically in buckets of 0-30, 31-60, 61-90, and 90-plus.
Net 30
Net 30 is a payment term that gives the customer 30 calendar days from the invoice date to pay the full amount due.
Payment Terms
Payment terms are the written rules that define when and how a customer must pay for services rendered.
Accounts Payable
Accounts payable is the total amount of money a business owes to its suppliers and vendors for goods and services already received but not yet paid for.
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