Accounts receivable

Published Friday 24 July 2026

Table of contents

• What is accounts receivable?
• How accounts receivable works
• Accounts receivable vs accounts payable
• Is accounts receivable an asset?
• The accounts receivable process
• Accounts receivable turnover ratio and days sales outstanding
• How to manage accounts receivable
• Simplify accounts receivable with Xero
• FAQs on accounts receivable
• Related terms
• Learn more about accounts receivable

Key takeaways

• Accounts receivable is the money your customers owe you for goods or services you've already delivered.
• It sits on your balance sheet as a current asset, because you expect to collect it within 12 months.
• Accounts receivable and accounts payable are two sides of the same transaction: money owed to you and money you owe.
• Clear payment terms, prompt invoicing and automated tracking help you collect what you're owed and protect your cash flow.

What is accounts receivable?

Accounts receivable is the money your customers owe you for goods or services you've already provided but haven't yet been paid for. You might also see it called receivables, trade debtors, or AR.

How accounts receivable works

Accounts receivable is created whenever you sell on credit and let a customer pay after you've delivered. Here's how the cycle usually runs from sale to payment.

1. Deliver the goods or services your customer has ordered.
2. Send an invoice that sets out what's owed and when payment is due.
3. Track the invoice as an outstanding amount in your accounts.
4. Follow up and collect the payment by the due date.
5. Record the payment and reconcile it against the invoice.

Accounts receivable vs accounts payable

Accounts receivable and accounts payable are two sides of the same transaction, seen from opposite ends. One tracks money coming in, the other money going out.

• Accounts receivable is money owed to you, so you record it as an asset.
• Accounts payable is money you owe your suppliers, so you record it as a liability.

Is accounts receivable an asset?

Yes, accounts receivable is an asset. It appears on your balance sheet as a current asset, because you expect to turn it into cash within 12 months.

It counts as value your business owns: a legal claim to payment from customers who've bought from you on credit.

The accounts receivable process

Managing accounts receivable well means running the same core activities for every credit sale. These tasks keep your invoices moving and your records accurate.

• Invoicing promptly and accurately as soon as the work is done
• Tracking every outstanding invoice against its due date
• Following up on payments that become overdue
• Reconciling incoming payments against the right invoices

Accounts receivable turnover ratio and days sales outstanding

Two simple measures show how quickly you collect what you're owed. Both help you spot cash flow problems early.

The accounts receivable turnover ratio shows how many times you collect your average receivables over a period. A higher ratio suggests you're collecting quickly.

Days sales outstanding (DSO) shows the average number of days it takes to get paid after a sale. A lower number means cash reaches your account sooner.

How to manage accounts receivable

Staying on top of accounts receivable protects your cash flow and reduces the time your money spends tied up in unpaid invoices. A few habits make a real difference.

• Set clear payment terms before you start the work
• Invoice promptly and check every detail is correct
• Make it easy to pay by offering simple payment options
• Monitor your aged receivables to spot overdue accounts
• Follow up politely and consistently on late payments
• Automate reminders and reconciliation with accounting software

Simplify accounts receivable with Xero

Xero brings your invoicing, payment tracking and reconciliation together in one place, so you spend less time chasing payments and more time running your business. You can send invoices, set automatic reminders and see what's owed at a glance. Try Xero and get one month free to see how it fits your business.

FAQs on accounts receivable

Here are answers to some frequently asked questions about accounts receivable.

Is accounts receivable a debit or a credit?

Accounts receivable is recorded as a debit, because it's an asset. When the customer pays, you credit accounts receivable to reduce the balance.

What is the difference between accounts receivable and accounts payable?

Accounts receivable is money your customers owe you, while accounts payable is money you owe your suppliers. One is an asset, the other a liability.

Is accounts receivable an asset or a liability?

Accounts receivable is an asset, not a liability. If an invoice can't be collected, though, it may be written off as a bad debt.

How long should accounts receivable take to collect?

It depends on your payment terms, but many businesses aim to collect within 30 to 60 days. Tracking your days sales outstanding (DSO) shows whether you're on target.

Can you automate accounts receivable?

Yes. Accounting software like Xero can automate invoicing, payment reminders and reconciliation, so you spend less time on manual admin.

Related terms

• Invoice
• Accounts payable
• Cash flow
• Balance sheet

Learn more about accounts receivable

• What is accounts receivable?
• Chasing outstanding invoices
• Invoicing
• The invoicing process