Accounts receivable refers to amounts owed to a business by customers and clients who have purchased goods or services on credit but not yet remitted payment. It represents a major current asset on the balance sheet derived from the ordinary credit operations of the company.
Characteristics of Accounts Receivable
- Invoices itemize goods/services delivered along with payment due dates and terms
- Aging reports track receivables by time period to identify payment delays or collectability issues
- Allowance for doubtful accounts reserves for expected credit losses as a balance sheet offset
- Collection efforts include payment reminders, discounts for early remittance, and pursuance of delinquent customers
Example
A retailer outsourced accounts receivable management to a third party to focus on growth initiatives while improving collections through tailored customer outreach and enhanced payment channels.
Key Takeaways
Proper administration of accounts receivable entails both customer service and control functions to maximize cash conversion, maintain healthy debtor relationships, and minimize uncertainty tied to uncollected balances.