What are accounts receivable?
Accounts receivable (AR) is the money customers owe a business for goods or services delivered on credit — recorded as a current asset on the balance sheet under IFRS 9 and US GAAP (ASC 326). AR is the bridge between revenue recognition and cash collection: revenue books when performance obligations are met; cash arrives when the customer pays.
Key metrics
- Days Sales Outstanding (DSO): AR ÷ Daily Revenue × 365. Rising DSO signals slower collections or weaker customer health.
- Aging buckets: 0–30, 31–60, 61–90, 90+ days. The further out a balance ages, the more likely it becomes bad debt.
- AR turnover: Revenue ÷ Average AR. Higher turnover means faster cash conversion.
- Allowance for expected credit losses: the contra-asset that reduces gross AR to net realisable value under IFRS 9.
AR vs. related concepts
- AR vs. revenue: revenue is recognised; AR is the unpaid balance.
- AR vs. cash flow: high AR with low cash receipts signals working-capital strain.
- AR vs. notes receivable: notes have formal written promises with interest; AR is informal trade credit.
Why founders watch it
AR is real revenue that has not yet become cash. A company growing revenue 50% while AR grows 80% is silently bleeding cash into customer balance sheets. In due diligence, expect aging reports, customer concentration analysis and allowance methodology to be reviewed.
Do: review the AR aging weekly; chase past-due balances aggressively; book allowances per IFRS 9 expected-credit-loss model.
Don’t: treat all AR as collectible cash — a single distressed enterprise customer can wipe out an SMB SaaS quarter.