Accounts Receivable (AR)

Accounts receivable (AR) is the money customers owe a company for goods delivered or services performed on credit terms. On the balance sheet it is a current asset, usually the largest one after cash and inventory for a B2B seller, and it is recorded net of an allowance for doubtful accounts. Every dollar of AR is a dollar of sales the company has recognized but not yet collected, funded in the meantime by the company's own working capital.

AR is best understood as a portfolio that must be actively managed, not a byproduct of selling. Its quality is measured by aging (how much is current versus past due), its velocity by DSO and turnover ratios, and its risk by the concentration and creditworthiness of the customers behind it. Two companies with identical AR balances can be in radically different positions: one with 95 percent current across two hundred customers, the other with a third of the ledger past due and half of it owed by three accounts.

The AR function spans a process chain, often called invoice-to-cash: invoicing accurately, delivering invoices where the customer's AP process will actually see them, applying cash as it arrives, chasing what goes past due, resolving disputes and deductions, and escalating what will not resolve. Weakness anywhere in the chain shows up as the same symptom, rising DSO, which is why diagnosing AR problems starts with decomposing where in the chain the days are being lost.