Accounts Receivable

Accounts receivable (AR) represents the outstanding invoices and money owed to a business by its customers for goods or services delivered on credit — classified as a current asset on the balance sheet because it is expected to be collected within one year or one operating cycle. AR is the single largest component of working capital for most B2B businesses, typically representing 30–40% of total current assets. The health of accounts receivable is measured by days sales outstanding (DSO), which averages 40–55 days across industries but can exceed 90 days in sectors like construction, government contracting, and healthcare. Poor AR management directly impairs cash flow: for every $1 million in revenue, a 15-day increase in DSO traps approximately $41,000 in additional working capital, forcing businesses to rely on revolving credit lines at 7–12% interest rates or invoice factoring at 1–5% per month. Key AR management practices include establishing clear credit policies and payment terms, implementing automated dunning sequences, offering early payment discounts (typically 2/10 Net 30), monitoring aging buckets (current, 30-day, 60-day, 90-day+), and conducting regular bad debt reserve analysis. The allowance for doubtful accounts under GAAP requires estimating uncollectible receivables using historical loss rates or the current expected credit loss (CECL) model. Modern AR automation platforms significantly accelerate collections by enabling electronic invoicing, customer self-service portals, AI-driven payment prediction, and straight-through cash application — reducing DSO by 10–25 days for most organizations.