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Accounting
Accounts Receivable
Money owed to a business by its customers for goods or services delivered but not yet paid for.
Accounts receivable (AR) is the money customers owe a company — it's recorded as an asset on the balance sheet because it represents future cash. When a business sells on credit ("buy now, pay in 30 days"), that sale becomes AR until payment arrives.
The risk? Some customers never pay. That's why companies track their days sales outstanding (DSO) — the average number of days it takes to collect payment. A rising DSO is a warning sign: customers are taking longer to pay, which could signal financial stress in the market or poor credit decisions by the company.
Imagine you mowed your neighbor's lawn but they said "I'll Venmo you later." That IOU is your accounts receivable — work done, value delivered, cash not yet in hand. For companies, it's the same thing, just with more zeros and formal invoices.
Real world: Netflix's business model is mostly subscription-based, so it has very little AR. But a company like IBM — which sells massive software contracts to corporations — might have billions in AR, waiting months for enterprise clients to pay their invoices. Managing that gap is a full-time job.
💡 Accounts receivable is revenue you've earned but haven't touched yet — a promise that needs to become cash.