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What is accounts receivable?

Learn about accounts receiveable

Accounts receivable, or AR, is a crucial figure if you allow your customers credit to pay for your service / product after a period of time. Analysing your average AR can yield a huge amount of information on your business’ performance.

On your balance sheet AR is an asset, as it represents money owed by customers on unpaid invoices. How a ‘normal’ AR should look depends on your industry, as AR levels are industry-specific.

Closely examine your past AR levels on a monthly, quarterly, and annual basis, and note how the levels trend. They may vary seasonally, or by holidays, depending on the nature of your business.

If you notice your AR levels rising unexpectedly, it’s probably time to start implementing more productive collection practices, and begin renegotiating credit terms with some of your customers.

Dropping AR levels may indicate successful collection policies, but may also suggest sales pipelines are dwindling. Regardless, it’s good practice to monitor and learn from these trends and keep a constant eye on AR.

Visit this website for an introduction to AR, using Walmart as an example.

Read: Accounts receivable on the balance sheet [1]

References

1. Kennon J. Accounts receivable on the balance sheet [Internet]. The Balance. Available from: https://www.thebalance.com/accounts-receivables-on-the-balance-sheet-357263

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Financial Analysis for Business Decisions: Cash Flow Management

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