Accounts receivable (AR) is money a business is owed by customers for goods or services already delivered on credit. For example, if a company sends a customer a $10,000 invoice due in 30 days, the $10,000 is recorded as accounts receivable until the customer pays.
Common accounts receivable examples include:
- A manufacturer shipping products and invoicing a retailer.
- A consulting company billing a client after completing a project.
- A contractor sending a progress invoice after completing a construction milestone.
- A SaaS company invoicing an enterprise customer on monthly payment terms.
- A healthcare provider waiting for payment from a patient or insurer.
In simple terms: Accounts receivable is earned revenue that has not yet become collected cash.
What Is Accounts Receivable?
Accounts receivable represents money customers owe a business after purchasing goods or services on credit. Instead of collecting payment immediately, the business gives the customer an agreed period to pay, such as Net 15, Net 30, or Net 60.
Until the invoice is paid, the amount remains in accounts receivable. In most businesses, accounts receivable is recorded as a current asset because the company expects to convert the outstanding balance into cash within its normal operating cycle.
Accounts receivable affects more than accounting. It influences cash flow, working capital, collection performance, customer relationships, financial reporting, and business planning.
Accounts Receivable Examples by Industry
Accounts receivable exists whenever a business delivers goods or services before receiving payment. The following examples show how AR works in different industries.
1. Manufacturing Accounts Receivable Example
A manufacturer ships $50,000 worth of finished products to a retailer with Net 30 payment terms. Once the products are delivered and invoiced, the $50,000 becomes accounts receivable.
- The manufacturer has completed the sale.
- The retailer owes $50,000.
- The amount is recorded as accounts receivable.
- The business has earned revenue but has not yet collected cash.
2. Professional Services Accounts Receivable Example
A consulting company completes a project and sends a client a $20,000 invoice due in 30 days. Until the client pays the invoice, the $20,000 remains in accounts receivable.
3. Construction Accounts Receivable Example
A construction contractor completes a project milestone and sends a progress invoice to the customer. The outstanding invoice remains accounts receivable until the customer approves and pays it.
4. SaaS Accounts Receivable Example
A software company provides services to an enterprise customer and bills the customer monthly. Once the invoice is issued, the unpaid balance becomes accounts receivable.
5. Healthcare Accounts Receivable Example
A healthcare provider delivers services and waits for payment from an insurance company or patient. The outstanding balance is recorded as accounts receivable until payment is received.
6. Wholesale Accounts Receivable Example
A wholesaler ships products to a retailer and allows payment after delivery. If the retailer has multiple unpaid invoices, the total outstanding balance becomes part of the wholesaler’s accounts receivable.
7. Subscription Business Accounts Receivable Example
A subscription business invoices a business customer for quarterly or annual services. The amount remains accounts receivable until the customer completes payment.
How the Accounts Receivable Process Works
The accounts receivable process is the journey from approving customer credit to collecting and applying payment.
Accounts Receivable Process:
Credit Approval → Delivery → Invoice → Accounts Receivable → Collection → Cash Application
1. Approve Customer Credit
The business decides whether a customer qualifies to buy on credit and establishes payment terms, credit limits, and billing requirements.
2. Deliver Goods or Services
The business ships the product, completes the service, or reaches an approved project milestone. Accurate delivery records and supporting documentation can help prevent invoice disputes later.
3. Create and Send the Invoice
The business creates an invoice showing the goods or services provided, the amount due, the payment terms, and the due date.
A strong invoice should include:
- Customer name and billing contact
- Invoice number and invoice date
- Description of goods or services
- Quantity and pricing
- Taxes, discounts, or adjustments when applicable
- Payment due date
- Accepted payment methods
- Purchase order or contract references when required
4. Record the Receivable
Once the invoice is issued, the outstanding amount is recorded as accounts receivable and linked to the customer account and financial records.
5. Monitor Payment Status
The AR team tracks whether invoices are current, due soon, overdue, disputed, partially paid, or ready for escalation.
6. Follow Up on Unpaid Invoices
If payment is not received by the due date, the business follows up with the customer to confirm payment status or identify potential issues.
7. Apply and Reconcile Payment
When payment arrives, it is matched to the correct invoice and recorded in the accounting system. Accurate cash application helps ensure customer balances and financial reports remain correct.
Accounts Receivable vs. Accounts Payable
Accounts receivable and accounts payable represent opposite sides of business credit.
| Accounts Receivable | Accounts Payable |
|---|---|
| Money customers owe the business | Money the business owes others |
| Usually recorded as a current asset | Usually recorded as a current liability |
| Created when customers buy on credit | Created when the business purchases on credit |
| Primary goal: collect payment | Primary goal: pay approved bills |
Quick answer: Accounts receivable is money customers owe your business. Accounts payable is money your business owes suppliers, vendors, or other parties.
Why Accounts Receivable Matters
Accounts receivable connects credit sales to cash flow. A business can report strong revenue while still experiencing cash pressure if customers take too long to pay.
Accounts receivable can affect:
- Cash flow
- Working capital
- Revenue collection
- Customer relationships
- Credit risk
- Financial reporting
- Bad debt exposure
Strong AR management helps businesses understand when expected cash will arrive and identify collection risks before unpaid balances become significantly overdue.
Common Accounts Receivable Problems
Late Invoicing
Sending invoices late delays the entire collection cycle. Customers cannot begin their approval and payment process until they receive the correct invoice.
Incorrect or Missing Invoice Information
Missing purchase order numbers, incorrect pricing, incomplete descriptions, or incorrect billing contacts can delay payment.
Customer Disputes
Pricing, delivery, product quality, contract, or service disputes can prevent invoices from being approved and paid.
Inconsistent Follow-Up
Without a structured collection process, invoices can become significantly overdue before the business identifies the problem.
Cash Application Errors
Payments that are not matched correctly can create inaccurate customer balances and cause teams to follow up on invoices that have already been paid.
How to Improve Accounts Receivable Performance
- Invoice customers as soon as delivery or approval requirements are met.
- Document payment terms before the sale is completed.
- Maintain accurate customer billing information.
- Include required purchase order and contract information on invoices.
- Send proactive payment reminders.
- Prioritize high-value and high-risk overdue balances.
- Resolve disputes quickly and assign clear ownership.
- Apply and reconcile payments accurately.
- Monitor accounts receivable performance metrics.
- Automate repetitive receivables tasks where appropriate.
Key Accounts Receivable Metrics
Days Sales Outstanding (DSO)
Days Sales Outstanding estimates how long it takes, on average, for a business to collect payment after making a credit sale.
AR Turnover Ratio
The accounts receivable turnover ratio shows how efficiently a business collects outstanding receivables over a specific period.
Accounts Receivable Aging
An aging report groups invoices based on how long they have remained unpaid, helping teams identify collection priorities.
Collection Effectiveness
Collection effectiveness measures how much of the receivable balance that should be collectible during a period is actually collected.
Dispute Rate
The dispute rate helps identify how frequently invoices encounter issues that delay payment.
When Should a Business Automate Accounts Receivable?
Accounts receivable automation can help businesses reduce repetitive manual work, improve collection visibility, and create more consistent receivables processes.
Automation can support activities such as:
- Invoice delivery
- Payment reminders
- Collection task prioritization
- Customer communication tracking
- Payment matching
- Cash application
- Accounts receivable reporting
- Overdue balance monitoring
Businesses may benefit from AR automation when they experience:
- High invoice volumes
- Manual collection follow-up
- Spreadsheet-based tracking
- Delayed cash application
- Growing overdue balances
- Limited visibility into collection priorities
Automation works best when the underlying accounts receivable process, customer data, payment terms, and exception workflows are clearly defined.
Accounts Receivable Management Checklist
- Are customer credit terms documented?
- Are billing contacts accurate?
- Are invoices sent quickly after delivery?
- Do invoices include required purchase order and contract details?
- Is there a consistent follow-up process?
- Are disputes tracked separately from normal overdue invoices?
- Are aging reports reviewed regularly?
- Are high-value and high-risk balances prioritized?
- Are payments matched and applied accurately?
- Are recurring billing and collection problems identified?
- Are AR performance metrics monitored?
Reduce Manual AR Work and Improve Collection Visibility
Managing accounts receivable becomes more complex as invoice volume, customer requirements, payment exceptions, and collection workloads increase.
Gia helps finance teams automate repetitive receivables work, prioritize collection activity, and improve visibility across the order-to-cash process.
Frequently Asked Questions About Accounts Receivable
What is an example of accounts receivable?
An example of accounts receivable is a company delivering products worth $10,000 and giving the customer 30 days to pay. Until the payment is collected, the $10,000 is recorded as accounts receivable.
Is accounts receivable an asset?
Yes. Accounts receivable is generally recorded as a current asset because it represents money the business expects to collect from customers.
What is the difference between accounts receivable and accounts payable?
Accounts receivable is money customers owe a business. Accounts payable is money a business owes suppliers, vendors, and other parties.
What happens when accounts receivable is paid?
When a customer pays an invoice, the payment is applied to the outstanding receivable. The accounts receivable balance decreases, and the business records the cash received.
Why is accounts receivable important?
Accounts receivable is important because it connects credit sales to cash flow. Slow collections can create cash-flow pressure even when sales and revenue are strong.
What are common accounts receivable examples?
Common accounts receivable examples include unpaid customer invoices from manufacturers, contractors, wholesalers, consulting firms, SaaS companies, healthcare providers, and other businesses that sell on credit.
What causes accounts receivable to increase?
Accounts receivable increases when a business makes a credit sale and invoices a customer before receiving payment. It can also increase when customers delay payment on existing invoices.
How can businesses reduce overdue accounts receivable?
Businesses can reduce overdue accounts receivable by invoicing quickly, maintaining accurate customer information, setting clear payment terms, sending consistent reminders, resolving disputes quickly, and prioritizing high-risk balances.
The Bottom Line
Accounts receivable is money customers owe a business for goods or services already delivered on credit. Effective accounts receivable management helps businesses convert sales into cash by improving invoicing, payment tracking, collections, dispute resolution, and cash application.
The strongest AR processes make it easier for customers to understand and pay invoices while giving finance teams clear visibility into payment risk, overdue balances, and expected cash flow.
