What is accounts receivable? A plain guide

Accounts receivable (AR) is the money your customers owe you for work you’ve done or goods you’ve delivered but haven’t been paid for yet. The moment you send an invoice on credit terms — “pay within 30 days” — that amount becomes a receivable. On your balance sheet it sits as an asset, because it’s value you expect to turn into cash.

AR vs accounts payable

The simple flip side: accounts payable is the money you owe your suppliers, while accounts receivable is the money owed to you.

The AR lifecycle is short and predictable: you invoice the customer → the invoice reaches its due date → it gets paid, or it slips into overdue. Most cash-flow trouble lives in that last fork — invoices that drift past due and stay there.

Why accounts receivable matters

Here’s the trap that catches a lot of otherwise healthy businesses: profit on paper isn’t the same as cash in the bank. The day you raise a $5,000 invoice, your accounts show $5,000 of revenue — but you can’t pay wages, rent or suppliers with a receivable. You can only spend cash that has actually arrived.

When AR grows and ages, that gap widens. A large pile of unpaid, slow-moving invoices means you’re effectively lending money to your customers for free, while your own bills keep coming. High and aging AR is one of the most common reasons profitable businesses still run out of money.

The two numbers to watch

Two simple measures tell you almost everything about the health of your AR.

DSO (Days Sales Outstanding) is the average number of days it takes to collect a credit sale. A lower DSO means cash comes back faster. It’s the single best gauge of how quickly your receivables convert to cash — you can work out yours with the DSO calculator, and there’s a full playbook for improving it in how to reduce DSO.

The AR aging report sorts every unpaid invoice into buckets by how overdue it is — typically current, 1–30 days, 31–60, 61–90, and 90+. It shows at a glance who owes you and how stale the debt is, so you know where to focus your chasing. Anything sitting in the older buckets needs attention first.

How to keep AR healthy

Keeping receivables under control is mostly about good habits, repeated consistently:

• Invoice promptly. Bill the moment you deliver, not at month-end. The clock to payment doesn’t start until the invoice goes out.
• Set clear terms. Write a specific due date rather than “within 30 days,” and agree payment terms before you start the work.
• Send statements. A periodic statement of account summarising what a customer owes is a gentle, professional nudge — produce one in seconds with the statement generator.
• Follow up consistently. A friendly reminder before the due date and a fixed follow-up cadence after it catch most “we forgot” lateness.
• Take deposits. For larger or longer jobs, ask for a deposit up front and bill in stages so you’re never carrying the whole amount.

It also helps to look ahead: mapping when your receivables should actually land with the cash flow forecast calculator turns AR from a vague worry into a number you can plan around.

The bottom line

Accounts receivable is just the gap between doing the work and getting paid for it. Manage that gap — invoice fast, set clear terms, watch DSO and your aging report, and chase on a schedule — and your cash flow stays steady. Let it drift, and even a profitable business can stall. If keeping up the consistent follow-up by hand is the hard part, Duefy automates the chasing so your receivables stay low without the manual effort.