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Accounts Receivable

Accounts Receivable (A/R) represents money owed to your business by customers. Effective A/R management ensures steady cash flow and minimizes bad debts.

What is Accounts Receivable?​

A/R is created when you:

  • Sell goods or services on credit
  • Invoice customers with payment terms
  • Allow customers to "pay later"

It's an asset because it represents money you will receive.

A/R Management Process​

1. Establish Credit Policies​

  • Define payment terms (Net 30, Net 15, etc.)
  • Set credit limits for customers
  • Determine when to require deposits
  • Create approval process for credit

2. Issue Invoices Promptly​

  • Send immediately after delivery
  • Include all required information
  • Use clear payment terms
  • Provide multiple payment options

3. Track Aging​

Monitor how long invoices are outstanding:

  • Current (0-30 days)
  • 31-60 days
  • 61-90 days
  • Over 90 days

4. Follow Up on Overdue Accounts​

  • Friendly reminder before due date
  • Contact on due date if unpaid
  • Escalating reminders for late payments
  • Collection procedures for seriously overdue accounts

5. Record Payments​

  • Match payments to invoices
  • Update customer balances
  • Note any discrepancies
  • Deposit promptly

Best Practices​

  1. Clear payment terms on all invoices
  2. Prompt invoicing (same day as delivery)
  3. Regular aging reports (weekly minimum)
  4. Consistent follow-up procedures
  5. Accurate record keeping
  6. Customer communication

Next Steps​

Learn about accounts payable to manage what you owe vendors effectively.