What is Accounts Receivable, and why is it important?
What is Accounts Receivable, and why is it important?
Accounts receivable (AR) refers to money owed by a company's customers for goods or services that have been delivered but not yet paid for. Recorded as a current asset on the balance sheet, AR is important because it shows a company's ability to raise capital and maintain cash flow. Effective AR management helps ensure liquidity. This is critical for day-to-day operations and growth. Poor AR management can cause cash flow problems. Even if a business is profitable on paper, companies often use expiration schedules to track past-due payments. and offer discounts for early payments to encourage timely repayment.