Accounts receivable

Published Thursday 23 July 2026

Table of contents

• What is accounts receivable?
• Is accounts receivable an asset?
• Accounts receivable vs accounts payable
• Why accounts receivable matters for your cash flow
• The accounts receivable process
• Accounts receivable ageing report
• Accounts receivable turnover ratio
• How to manage accounts receivable
• Manage your accounts receivable with Xero
• FAQs on accounts receivable
• Related terms
• Learn more about accounts receivable

Key takeaways

• Accounts receivable is the money customers owe you for goods or services you’ve delivered on credit.
• It sits on your balance sheet as a current asset, because you expect to collect it within 12 months.
• Tracking receivables closely protects your cash flow and helps you spot overdue invoices early.
• Clear payment terms, prompt invoicing and steady follow-up help you collect what you’re owed sooner.

What is accounts receivable?

Accounts receivable is the money your customers owe you for goods or services you’ve delivered but haven’t been paid for yet. It’s recorded as the unpaid invoices sitting in your books.

You’ll also hear it called receivables, trade debtors, or AR. Accounts receivable and accounts payable are two sides of the same transaction: what one business is owed, the other owes.

In larger businesses, accounts receivable can also refer to the team that sends invoices and chases payment.

Is accounts receivable an asset?

Yes, accounts receivable is a current asset on your balance sheet. It’s money you expect to receive, usually within 12 months, so it counts as something of value your business owns.

Once a customer pays, the amount moves out of accounts receivable and into your bank balance.

Accounts receivable vs accounts payable

Accounts receivable is money owed to you, while accounts payable is money you owe to suppliers. Every credit sale creates both, one on each side of the deal.

Say you send a customer a $500 invoice for work you’ve completed. You record that $500 as accounts receivable, because the customer owes you. On their books, the same $500 is accounts payable, because they owe you. One transaction, two sets of records.

Why accounts receivable matters for your cash flow

Your cash flow depends on collecting what you’re owed on time. When invoices go unpaid, the money you need for wages, stock and bills stays out of reach.

According to Xero Small Business Insights, late payments cost New Zealand small businesses more than $827 million in 2023, up 81% from $456 million in 2021.

Watching your accounts receivable closely helps you catch late payments before they squeeze your cash flow.

The accounts receivable process

The accounts receivable process covers everything from agreeing terms to collecting payment. Here’s how it usually runs:

1. Agree payment terms with your customer before you start the work.
2. Send the invoice as soon as the goods or services are delivered.
3. Track the invoice so you know what’s outstanding and when it’s due.
4. Follow up on overdue invoices with a polite reminder.
5. Record the payment against the invoice once it arrives.
6. Reconcile the payment against your bank transactions.

Accounts receivable ageing report

An accounts receivable ageing report groups your unpaid invoices by how long they’ve been outstanding. It’s one of the quickest ways to see who owes you and for how long.

The report sorts invoices into buckets, such as current, 30, 60 and 90 days overdue. That lets you chase the oldest debts first and act before a late payment turns into a bad debt.

Accounts receivable turnover ratio

The accounts receivable turnover ratio shows how quickly you collect payment from customers over a set period. It’s a simple way to check how well your collection is working.

You work it out by dividing your net credit sales by your average accounts receivable for the period. A higher ratio means you’re collecting what you’re owed sooner, which is good news for your cash flow.

How to manage accounts receivable

A few simple habits keep your receivables under control and your cash flow steady. To manage your accounts receivable well:

• set clear payment terms before you start the work
• invoice promptly once goods or services are delivered
• offer online invoice payments to make settling up easy
• send reminders as due dates approach
• follow up quickly when an invoice goes overdue

Manage your accounts receivable with Xero

Chasing invoices by hand eats into time you could spend running your business. Xero tracks who owes you, sends automatic invoice reminders and lets customers pay online, so you can collect what you’re owed sooner. Get one month free.

FAQs on accounts receivable

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

What is an accounts receivable invoice?

An accounts receivable invoice is the bill you send a customer for goods or services supplied on credit. It records what they owe you and when the payment is due.

What is accounts receivable financing?

Accounts receivable financing lets you borrow against your unpaid invoices to free up cash before customers pay. A lender advances a percentage of the invoice value, and you repay once the invoice is settled.

What’s the difference between accounts receivable and accounts payable?

Accounts receivable is money owed to you by customers, while accounts payable is money you owe to suppliers. One is an asset on your books; the other is a liability.

Is accounts receivable a debit or a credit?

Accounts receivable is recorded as a debit, because it’s an asset. It’s reduced with a credit once the customer pays.

What are trade debtors?

Trade debtors are the customers who owe you money for goods or services. It’s another name for accounts receivable, common in New Zealand and the UK.

Related terms

• Accounts payable
• Invoice
• Current liabilities
• Cash vs accrual accounting

Learn more about accounts receivable

• What is accounts receivable?
• Your guide to invoicing
• Working capital guide
• Accounts payable process