What is Accounts Receivable?

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PBS™ Accounts Receivable

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This post is for small to mid-sized companies who may be vetting accounts receivable software.

The following is sourced from Investopedia.  We hope you find it useful.

Outstanding Invoices

“Accounts receivable is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers.

Said another way, account receivable are amounts of money owed by customers to another entity for goods or services delivered or used on credit but not yet paid for by clients.

Accounts receivable refers to the outstanding invoices a company has or the money clients owe the company.

The phrase refers to accounts a business has a right to receive because it has delivered a product or service.

Accounts receivable, or receivables represent a line of credit extended by a company and normally have terms that require payments due within a relatively short time period, ranging from a few days to a fiscal or calendar year.

Understanding AR

Companies record accounts receivable as assets on their balance sheets since there is a legal obligation for the customer to pay the debt.

Furthermore, accounts receivable are current assets, meaning the account balance is due from the debtor in one year or less.

If a company has receivables, this means it has made a sale on credit but has yet to collect the money from the purchaser.

Periodic Invoices

Most companies operate by allowing a portion of their sales to be on credit. Sometimes, businesses offer this credit to frequent or special customers receive periodic invoices.

The practice allows customers to avoid the hassle of physically making payments as each transaction occurs.

In other cases, businesses routinely offer all of their clients the ability to pay after receiving the service.

For example, electric companies typically bill their clients after the clients received the electricity.

While the electricity company waits for its customers to pay their bills, the company considers unpaid invoices a part of its accounts receivable.

Importance of Accounts Receivable

AR is an important aspect of a businesses’ fundamental analysis.

Accounts receivables are current assets so they are a measure of a company’s liquidity or ability to cover short-term obligations without additional cash flows.”

With 35 years of business and accounting experience, Passport Software provides comprehensive yet easy to use accounts receivable software for small businesses and medium sized companies.

The accounts receivable module is part of Passport Software’s accounting software solution.

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Great advice, easily explained
for you to grow your business!