Accounts Receivable
Table of Contents:
Definition of Accounts Receivable
Accounts receivable is a financial term that refers to the outstanding payments owed to a business or organization by its customers or clients for goods sold or services rendered on credit. It represents the money that is expected to be collected from customers in the future, usually within a specified period known as the credit term.
What is Accounts Receivable?
Accounts receivable is the amount of money that a company has billed its customers but has not been paid.
When a business extends credit to its customers, it creates accounts receivable as a record of the amount owed to it. The customers are expected to make payments for these outstanding invoices according to the agreed-upon terms.
Accounts receivable is considered an asset on a company's balance sheet since it represents the right to receive future cash inflows.
Proper management of accounts receivable is essential for maintaining healthy cash flow and ensuring that the business can meet its financial obligations.
Timely collection of accounts receivable is crucial to keep the business operations running smoothly and to minimize the risk of bad debts, where customers fail to pay their outstanding balances.
To manage accounts receivable effectively, businesses often implement credit policies, conduct credit checks, and actively follow up with customers to ensure prompt payment.
