Glossary
Accounts Receivable (AR)
Accounts receivable is the total amount owed to a company by its customers for goods delivered or services completed but not yet paid for. It sits on the balance sheet as a current asset and represents cash that the business has earned but not yet collected. Managing AR (and financing it) is a direct way to improve short-term liquidity.
What It Is
When a business sells on credit, which most B2B businesses do, it does not receive payment immediately. Instead, it issues an invoice and waits. That outstanding balance is accounts receivable: real value already earned, but temporarily inaccessible as cash.
AR management covers everything from issuing invoices correctly to collecting payment on time, and resolving disputes when they arise. Poor AR management leads to high DSO, cash flow gaps, and bad debt, invoices that are never paid.
Supply chain finance tools address AR from multiple angles. Invoice financing allows businesses to borrow against receivables before they are due. Factoring converts receivables into immediate cash by selling them outright. Early payment programmes (offered by buyers) incentivise faster collection through discounts.
The AR Lifecycle
Sale completed: goods delivered or services rendered
Invoice issued: sent to customer with agreed payment terms
Invoice recorded: entered into the AR ledger as an asset
Payment monitoring: AR team tracks due dates and outstanding balances
Reminders and dunning: automated or manual follow-up as due dates approach or pass
Payment received: customer pays; AR entry is cleared
Dispute resolution: if customer disputes the invoice, credit notes or adjustments are issued
Bad debt write-off: if payment is not received, the AR entry is written off as a loss
Key AR Metrics
Days Sales Outstanding (DSO): average days to collect after a sale; lower is better.
AR Aging: distribution of receivables by age; target is more in the 0–30 days bucket.
Collection Effectiveness Index (CEI): % of collectible AR collected; higher, target 95%+.
Bad Debt Ratio: write-offs as % of total AR; lower is better.
Dispute Rate: % of invoices disputed by customers; lower is better.
AR Aging Report
An AR aging report categorises outstanding invoices by how long they have been unpaid. It is the most important tool in collections management.