Accounts Receivable (AR)
Definition
Accounts receivable (AR) represents money owed to a company by its customers for products or services already delivered but not yet paid for. AR is recorded as a current asset on the balance sheet and directly impacts cash flow, as high receivables mean revenue has been earned but cash has not yet been collected.
Overview
Accounts receivable arises whenever a company extends credit terms to customers, delivering the product or service before collecting payment. This is common in B2B SaaS with enterprise clients who require net-30, net-60, or even net-90 payment terms.
AR management is a critical component of cash flow health. A company can be profitable on paper but cash-strapped in reality if a large portion of revenue is tied up in uncollected receivables. The days sales outstanding (DSO) metric tracks how long it takes on average to collect payment, serving as a key efficiency indicator.
For SaaS companies, the ideal scenario is prepaid subscriptions (monthly or annual) via credit card, which eliminates AR entirely for those customers. However, enterprise contracts often require invoicing and payment terms. Founders should establish clear collections processes, send timely reminders, and consider offering early-payment discounts for chronically slow-paying customers.
Example
A startup invoices an enterprise client $50K for quarterly service on January 1 with net-30 terms. The $50K appears as accounts receivable until the customer pays on January 28.
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