Money customers owe but haven't paid yet. Manageable AR is part of doing business; growing AR without growing collections is where cash crunches come from.
Definition
Accounts Receivable (AR) - money owed to the business by customers for products or services already delivered but not yet paid for. Sits on the balance sheet as a current asset.
Common uses
- Cash flow forecasting - expected AR collections drive the 13-week cash forecast
- DSO tracking - the standard metric for collections efficiency
- Working capital management - AR is one of the largest working capital line items
Watch out
Aging AR is one of the most reliable warning signs of cash trouble. If DSO is creeping up, collections discipline has slipped or customers are getting stressed. Both deserve attention.