finance
Accounts Receivable (AR)
Money customers owe you for goods or services already delivered.
Definition
Accounts receivable (AR) is money customers owe for invoices issued but not yet paid. It sits as a current asset on the balance sheet. AR is real value but it isn't cash - and the gap between booking AR and collecting cash is where service businesses get into trouble. Days Sales Outstanding (DSO) measures how long AR takes to collect; under 30 days is healthy, over 60 is a problem. Aggressive collections, clear payment terms, and incentives for early payment all reduce AR.
In your business
- →Track DSO monthly - rising DSO is an early warning of bigger trouble
- →Age AR weekly: anything past 60 days needs a personal call, not another email
- →Offer 1-2% early-payment discount on terms 2/10 net 30 - the math usually works