What is accounts receivable?

Published Friday 24 July 2026

Table of contents

• What is accounts receivable?
• Accounts receivable vs accounts payable
• Where accounts receivable sits on the balance sheet
• Accounts receivable example
• Why managing accounts receivable matters
• Accounts receivable turnover ratio
• Accounts receivable aging schedule
• How to improve your 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 your customers owe you for goods or services you’ve invoiced but haven’t been paid for yet.
• It sits on your balance sheet as a current asset, not as revenue.
• Late payments can squeeze your cash flow, so tracking what’s owed helps you stay in control.
• Clear payment terms, prompt invoicing and regular reminders can help you collect what you’re owed sooner.

Accounts receivable is among the first things to get your head around when you’re managing your business finances. Here’s what it means and why it matters.

What is accounts receivable?

Accounts receivable is the money your customers owe you for goods or services you’ve already delivered and invoiced. It’s sometimes called receivables, trade debtors or AR.

In simple terms, it’s a sales invoice a customer hasn’t paid yet. The amount stays in accounts receivable until the payment lands in your bank account.

Accounts receivable can also mean the people or team who track and chase those payments. In a small business, that’s often you.

Accounts receivable and accounts payable are two sides of the same transaction. It helps to see how they differ.

Accounts receivable vs accounts payable

Accounts receivable is money owed to you, so it counts as an asset. It’s cash you expect to come in once customers settle their invoices.

Accounts payable is the opposite. It’s money you owe to your suppliers, so it counts as a liability, or cash you expect to pay out.

Knowing where accounts receivable shows up in your accounts helps you read your numbers correctly. It has a specific spot on your balance sheet.

Where accounts receivable sits on the balance sheet

Accounts receivable is recorded as a current asset on your balance sheet. That’s because you expect the money to arrive within a year, usually much sooner.

It isn’t the same as revenue. You record the amount as receivable under accrual accounting, where you count the sale when you invoice it, not when the cash comes in.

A quick example makes accounts receivable easier to picture. Here’s how it works in practice.

Accounts receivable example

Say you invoice a customer R5,000 for services on 30-day payment terms. You’ve done the work, but the customer hasn’t paid yet.

That R5,000 sits in accounts receivable as money owed to you. Once the customer pays, the R5,000 moves out of accounts receivable and into your cash.

How well you manage accounts receivable has a direct effect on your day-to-day finances. Late payments are a real cost for small businesses.

Why managing accounts receivable matters

When invoices go unpaid, the money you’re counting on stays out of reach. That can put pressure on your cash flow and make it harder to pay your own bills, staff and suppliers.

Late payment is a widespread problem. According to National Treasury payment data, at the end of the second quarter of 2025, 95,399 invoices older than 30 days, worth a combined R12.4 billion, remained unpaid across government departments, up 17% on the previous quarter.

Keeping a close eye on what’s owed helps you spot slow payers early. That way you can follow up before a late invoice turns into a cash flow gap.

One useful way to measure how well you’re collecting payments is the accounts receivable turnover ratio. It puts a number on your collection speed.

Accounts receivable turnover ratio

The accounts receivable turnover ratio shows how quickly you collect the money customers owe you over a set period. It’s a simple way to check whether your collection process 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 payments more quickly, while a lower ratio can point to slow-paying customers or gaps in your follow-up.

To see which invoices need your attention, an accounts receivable aging schedule is a handy tool. It sorts what’s owed by how overdue it is.

Accounts receivable aging schedule

An accounts receivable aging schedule groups your unpaid invoices by how long they’ve been outstanding. Common groupings are current, 30 days, 60 days and 90 days or more.

This gives you a clear view of which accounts are overdue and by how much. You can then focus your follow-up on the invoices that have been sitting unpaid the longest.

A few simple habits can make a big difference to how quickly you get paid. These practical steps can help you keep accounts receivable under control.

How to improve your accounts receivable

Small changes to how you invoice and follow up can help you collect what you’re owed sooner.

• Set clear invoice payment terms so customers know exactly when to pay
• Invoice promptly, as soon as the work is done or the goods are delivered
• Send friendly reminders to chase overdue invoices before they age
• Offer online payment options to make it easier for customers to pay

Xero can help you send automatic invoice reminders, so you can keep on top of what’s owed without chasing every payment by hand.

Staying on top of what customers owe you doesn’t have to mean hours of admin. The right tools can do much of the tracking for you.

Manage your accounts receivable with Xero

Xero can help you send invoices, track what’s owed and send automatic reminders, all in the one system. You can see which invoices are paid and which are overdue at a glance, so you can keep on top of your accounts receivable and get back to running your business. Get one month free.

FAQs on accounts receivable

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

Is accounts receivable an asset or revenue?

Accounts receivable is an asset, not revenue. It’s the money customers owe you, recorded as a current asset on your balance sheet until it’s paid.

What is the difference between accounts receivable and accounts payable?

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

What are trade debtors?

Trade debtors is another name for accounts receivable, used often in South Africa. It covers customers who owe you money for goods or services you’ve invoiced.

How do you calculate the accounts receivable turnover ratio?

Divide your net credit sales by your average accounts receivable for the period. A higher result means you’re collecting payments more quickly.

Related Terms

• Invoice
• Accounts payable
• Cash flow
• Working capital
• Balance sheet

Learn more about accounts receivable

• Accounts receivable guide
• Managing accounts receivable
• Accounts payable process
• The invoicing process