Accounts Receivable (A/R)

Accounts Receivable (A/R) is the balance-sheet asset that tracks money customers owe for products or services already delivered but not yet paid for. It's recorded as a current asset because the company has a legal claim to be paid, and tracked with aging buckets (0-30 days, 31-60, 61-90, 90+) that reveal how quickly customers are actually paying. A/R represents revenue that's been recognized but not yet collected; healthy A/R turns into cash on time; aged A/R becomes collection risk.

The basic mechanics:

Customer signs a $50K contract with Net-30 payment terms. Service is delivered (or in SaaS, the recognized portion is delivered). On the day of invoice:

• Income statement: $50K revenue (recognized portion).
• Balance sheet: A/R +$50K (asset).
• Cash: no change yet.

30 days later, customer pays:

• Balance sheet: A/R -$50K, Cash +$50K.

If the customer pays late (60 days), the company holds the receivable on the balance sheet longer; the revenue was already recognized.

A/R aging buckets:

A/R aging is the standard report tracking how old receivables are:

Aging bucket	Healthy A/R %	Concerning A/R %
0-30 days	70-85%	<50%
31-60 days	10-20%	>25%
61-90 days	3-8%	>15%
91+ days	2-5%	>10%

Heavy concentration in 60+ day buckets signals collection problems.

Key A/R metrics:

Days Sales Outstanding (DSO): average days from invoice to collection. See Days Sales Outstanding for details.

A/R turnover: how many times A/R is "turned over" per year. Higher is better.

Bad debt expense: portion of A/R written off as uncollectible. Healthy SaaS: <1-2% of revenue.

Collections effectiveness: percentage of A/R collected within terms.

How A/R impacts cash flow:

A growing company that doesn't manage A/R well can be profitable on the income statement but cash-strapped because customers pay slowly:

• Revenue grows from $5M to $10M (recognized).
• A/R grows from $500K to $2M (collection lagging growth).
• Cash collected only grew from $5M to $9M.
• $1M "missing" cash is sitting in A/R.
• Burn covers the rest, so cash position deteriorates.

The collection playbook:

Net terms in contracts: define payment terms clearly (Net-30 standard for SMB; Net-60 common for enterprise).

Auto-pay: credit card or ACH auto-pay for SaaS reduces collection effort dramatically.

Dunning sequences: automated email reminders at 0/7/14/21/30/45 days past due.

Collections escalation: manual outreach for 30+ day past due; legal/agency for 60+ days.

Credit checks: for enterprise deals, run credit checks before extending Net-60 or Net-90 terms.

Customer-by-customer monitoring: identify slow-payers and adjust terms accordingly.

What founders get wrong: Treating A/R as something the finance team handles, not as an operational metric for the founder. The right discipline: review A/R aging monthly; investigate any account 60+ days past due personally; tighten payment terms for chronically slow payers.

Related: Accounts Payable · Days Sales Outstanding · Cash Flow · Working Capital · Balance Sheet

FAQ

What is Accounts Receivable (A/R)?
Money customers owe a company for services already delivered but not yet paid for. Recorded as a current asset on the balance sheet. Represents revenue recognized but not yet collected.

What is A/R aging?
The breakdown of outstanding receivables by how long they've been unpaid (0-30 days, 31-60 days, 61-90 days, 91+ days). Heavy concentration in 60+ day buckets signals collection problems.

What's a healthy A/R aging distribution?
0-30 days: 70-85% of A/R. 31-60 days: 10-20%. 61-90 days: 3-8%. 91+ days: 2-5%. Bad debt write-offs <1-2% of revenue.

How do I improve A/R collection?
Net-30 terms with auto-pay where possible; automated dunning sequences (0/7/14/21/30 days); escalation for 30+ days past due; credit checks for enterprise; monthly A/R aging review.