Harness Money

What is accounts receivable (AR)?

Accounts receivable refers to the money owed to a company by its customers or clients for goods sold or services rendered on credit. It represents the company’s short-term assets and is recorded as a current asset on the balance sheet.

When a company provides goods or services to customers on credit, it issues an invoice stating the amount due and the payment terms. The customers then become debtors, and their outstanding payments are added to the company’s accounts receivable balance. As customers make payments, the accounts receivable balance decreases.

Managing accounts receivable is essential for businesses to ensure a steady cash flow and timely collection of payments. Companies may establish credit policies, set payment terms, and employ collection efforts to reduce the risk of bad debts and improve the efficiency of receivables management.

Monitoring the aging of accounts receivable, calculating the average collection period, and implementing effective credit control measures are common practices to keep accounts receivable in check.