Proposals · Glossary
What is accounts receivable?
Accounts receivable is the money customers owe a business for goods or services it has already delivered on credit. It is recorded as a current asset on the balance sheet, because it is expected to turn into cash within months, and it falls as invoices are paid or written off.
Every unpaid invoice is a small loan to a customer, and accounts receivable is the total of those loans. Watching it closely is how a profitable business avoids running out of cash.
Indunil Asanka · Co-founder
4 min read · Published
| Term | What it is | Where it sits | Example |
|---|---|---|---|
| Accounts receivable | Money customers owe you | Current asset | A $4,400 invoice issued, not yet paid |
| Accounts payable | Money you owe suppliers | Current liability | A $900 supplier bill due next month |
| Revenue | Income earned in the period | Profit and loss statement | The $4,000 fee earned, before GST |
| Cash | Money actually received | Current asset | The $4,400 once the transfer lands |
How receivables arise
A receivable appears when a business delivers and invoices before it is paid. Under accrual accounting, the sale is recorded when it is earned, so revenue goes up and accounts receivable goes up by the same invoice amount. When the customer pays, cash rises and the receivable falls, and revenue does not move again. A business using cash accounting records nothing until the money arrives, but it still has receivables in practice, and tracking them is the only way to know who owes what. The IRS publication on accounting methods describes the accrual rule, and IFRS 9 treats trade receivables as financial assets measured at the amount expected to be collected.
A worked example
A fictional electrician finishes a $4,000 job on 1 October and issues a tax invoice for $4,400 including $400 GST, due in 14 days. On 1 October the business records $4,000 of revenue, $400 of GST payable and $4,400 of accounts receivable. On 12 October the client pays in full. Cash goes up by $4,400 and accounts receivable goes down by $4,400. Nothing else changes, because the revenue was already counted. If the client had paid $2,000 on account, the receivable would stand at $2,400 until the balance arrived.
Ageing: the report that matters
An ageing report sorts unpaid invoices by how long they have been outstanding: current, 1 to 30 days overdue, 31 to 60, 61 to 90, and over 90. The older an invoice gets, the less likely it is to be paid, so the buckets tell you where to spend chasing effort. A related measure, days sales outstanding, divides receivables by credit sales and multiplies by the days in the period to show how long the average invoice takes to turn into cash. A rising figure usually means payment terms are drifting or reminders have stopped.
Common mistakes
The first mistake is treating receivables as money in the bank when planning payroll or tax. The second is leaving invoices unchased because the client is friendly, so a 30 day invoice quietly becomes a 120 day one. The third is never writing off debts that will not be paid, which overstates assets and hides the real collection rate. The fourth is mixing up receivables and revenue: an invoice raises receivables, but revenue was earned when the work was done, whatever the payment date.
Where it shows up in the product
The proposals module lists every invoice with its status, from draft and issued to sent, viewed, overdue and paid, which is the raw material of an accounts receivable list. An invoice turns overdue the day after its due date, and a reminder preset can email the client before and after that date. A payment through the pay link's Stripe Checkout lands in the owner's connected Stripe account; a bank transfer is marked paid by hand. Ageing reports and balance sheets belong in your accounting software.
Questions people ask
Is accounts receivable an asset or a liability?
It is an asset, usually a current asset, because it represents cash the business expects to collect within a year. The matching liability sits on the customer's books as their accounts payable. A receivable that is unlikely to be collected should be reduced with an allowance or written off, so the balance sheet does not overstate what is coming in.
Does a small business on cash accounting have receivables?
Not in its books, because cash accounting records income only when it is received. The unpaid invoices still exist, though, and someone has to track them. Many small businesses run cash accounting for tax while keeping an invoice list or ageing report so they know who owes money and how late each payment is.
What is a good days sales outstanding figure?
There is no single good figure, because it depends on the terms you offer. A useful rule is to compare it with your standard terms: if invoices are due in 14 days and the figure sits at 40, clients are paying late on average. Track the trend month by month rather than chasing an industry benchmark.
Can accounts receivable be sold or borrowed against?
Yes. Invoice finance lets a business borrow against unpaid invoices, and factoring sells them to a finance company at a discount. Both speed up cash but cost money and sometimes involve the financier contacting your clients. They suit businesses with reliable, large clients and slow terms more than those with many small unpaid invoices.
When should an unpaid invoice be written off?
When collection is no longer realistic, such as after the debtor has entered liquidation or stopped responding despite reminders and a demand letter. Talk to your accountant first, because the timing affects tax. Writing it off removes it from receivables; keep the invoice and the collection history in your records in case the client pays later.
Make one with proposals
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Create a proposal with OneCraftRelated questions
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- What does net 30 mean on an invoice?What does net 30 mean? The full invoice amount is due 30 days after the invoice date. How net terms work, variants like 2/10 net 30, and when to use them.
Step by step in the builder: Set invoice reminders, then Send a proposal and get paid.
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