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  5. Accounts Receivable

Accounts Receivable

Amounts owed to a business by customers for goods or services delivered but not yet paid for.

Invoicing & ARAccounting & Bookkeeping

FAQs

What is a reasonable DSO benchmark?

A DSO under 45 days is generally considered healthy for most B2B businesses. DSO exceeding your standard payment terms by more than 15 days is a warning sign. SaaS companies collecting via credit card often achieve DSO under 5 days.

How do you write off uncollectible AR?

Uncollectible receivables are written off by debiting bad debt expense and crediting the allowance for doubtful accounts. Under GAAP, companies must estimate uncollectible amounts each period using either the percentage of sales method or the aging of receivables method.

What is the difference between AR and unbilled revenue?

AR represents invoices already sent to customers. Unbilled revenue (also called work-in-progress or contract assets) represents revenue earned but not yet invoiced — common in professional services firms and long-term project billing.

Related Terms

Accounts Payable

Short-term liabilities representing amounts a business owes to suppliers and vendors for goods or services received but not yet paid.

Days Sales Outstanding

The average number of days a company takes to collect payment after a sale, measuring accounts receivable collection efficiency.

Dunning

The process of systematically communicating with customers to collect overdue payments, through a sequence of increasingly urgent reminders.

Invoice Factoring

A financing arrangement in which a business sells its outstanding invoices to a third party at a discount in exchange for immediate cash.

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Accounts receivable (AR) represents money owed to a company by its customers for products delivered or services rendered on credit. Recorded as a current asset on the balance sheet, AR reflects the expectation of receiving cash in the near term — typically within 30 to 90 days per contractual payment terms.

Managing AR effectively is one of the most important levers for healthy cash flow. The AR process encompasses invoicing, payment tracking, collections (or 'dunning'), and cash application — the process of matching incoming payments to open invoices.

For B2B companies, slow-paying customers can create significant cash flow strain even when the business is nominally profitable. Key metrics for monitoring AR health include Days Sales Outstanding (DSO) — the average number of days it takes to collect payment after a sale — and the AR aging report, which categorizes outstanding invoices by how long they've been outstanding (0–30 days, 31–60 days, etc.).

Modern AR automation platforms such as Billtrust, Invoiced, and Chaser automate invoice delivery, send payment reminders, accept online payments, and even leverage AI to predict payment likelihood and prioritize collections outreach. For companies that cannot wait for customers to pay, invoice factoring and supply chain financing allow AR to be converted to immediate cash.

AR is also a common fraud vector — fictitious invoices and lapping schemes (applying one customer's payment to another's account) are classic AR fraud patterns. Strong internal controls, including independent reconciliation and regular AR aging reviews, are critical safeguards.