Accounts receivable
Accounts receivable (often called trade debtors) are amounts your customers owe you for goods or services you have supplied on credit. They sit on your balance sheet as a current asset and represent invoices you have issued but not yet been paid.
Simple example
You deliver a service and issue an invoice. Until the customer pays, the amount is recorded as accounts receivable. When payment arrives, receivables go down and cash goes up.
Good control of receivables helps cash flow. Use clear payment terms, send reminders and issue credit notes when you reduce or cancel a charge. If you think some invoices may never be paid, create an allowance for doubtful debts to show a realistic value.
What counts as accounts receivable:
- Trade receivables — unpaid customer invoices for your sales.
- Other receivables — amounts due that are not sales, such as refunds or employee advances.
- Credit notes — these reduce the amount owed by the customer.
- Allowance for doubtful debts — an estimate for invoices you may not collect.
- Aged receivables report — shows how long invoices have been outstanding to prioritise chasing.
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