What are accounts receivable?

Accounts receivable, almost always shortened to AR, is the balance sheet line that captures money owed to a business by its customers for sales already made on credit. When you deliver a product or finish a service and issue an invoice, the amount on that invoice sits in AR until the customer pays. In accounting terms, AR is a current asset, because the expectation is that it will convert to cash within the next 12 months.

The size of AR relative to revenue is a rough measure of how much credit a business is extending at any given moment. A business with a month of AR on the books is sitting on roughly 30 days of sales. A business with three months of AR is carrying a lot more working-capital exposure, and is also more vulnerable if one or two larger customers slow down.

Most of the operational work around AR happens downstream of the balance itself: aging reports, collection follow-up, payment processing, write-offs, and reporting. How that work is structured, and how quickly it runs, is what determines whether AR stays a healthy current asset or turns into a slow-growing pile of risk.