What is Accounts Receivable?
Accounts receivable (AR) is the money owed to a business by its customers for goods or services delivered but not yet paid for.
Accounts receivable (AR) represents money owed to your business—essentially, unpaid invoices. It's recorded as a current asset on your balance sheet because it represents money you expect to receive soon.
- **Key AR metrics:**
- AR Balance: Total unpaid invoices at any point in time
- Days Sales Outstanding (DSO): Average days to collect payment
- AR Aging: Breakdown of unpaid invoices by how overdue they are
- Collection Rate: Percentage of AR successfully collected
Why AR management matters: Poor AR management is a leading cause of cash flow problems for small businesses. You might be profitable on paper but struggle to pay bills if invoices remain unpaid.
Best practices for UK freelancers: 1. Invoice promptly (same day if possible) 2. Send payment reminders before due date 3. Chase overdue invoices consistently 4. Offer multiple payment methods 5. Consider deposits for large projects
AR vs AP: Accounts Receivable is money owed TO you. Accounts Payable (AP) is money you OWE to others.
Examples
A consultant's AR includes all outstanding client invoices
High AR with low DSO indicates healthy cash flow
An AR aging report shows £5,000 is 30+ days overdue
Related Terms
Net 30
Net 30 is a payment term meaning the full invoice amount is due within 30 days of the invoice date.
Invoice
An invoice is a commercial document issued by a seller to a buyer, listing the products or services provided and requesting payment.
Remittance Advice
A remittance advice is a document sent by a payer to inform the recipient which invoices are being paid by a specific payment.
Put This Into Practice
Create professional invoices with Experi. Our software handles accounts receivable and more—so you can focus on your business.