eCommerce Glossary
This e-commerce glossary features over 250 essential terms every online seller should know to succeed in digital commerce.
eCommerce Glossary
This e-commerce glossary features over 250 essential terms every online seller should know to succeed in digital commerce.
Accounts receivable (AR) refers to the outstanding payments a company expects from its customers for goods or services delivered on credit. These receivables are recorded as current assets on the balance sheet and represent a key component of a company’s working capital.
When a business sells a product or service and allows the customer to pay later—typically within 30, 60, or 90 days—that unpaid invoice becomes part of AR. Managing AR is essential for maintaining healthy cash flow and ensuring a business has the liquidity needed to operate effectively.
Calculating AR is straightforward. Follow these steps:
Accounts Receivable=∑(Outstanding Invoices)
For example, if a merchant has three outstanding invoices: $500, $300, and $200, the total would be:
Accounts Receivable=500+300+200=1000
Monitoring AR helps businesses:
Efficient AR management allows a business to optimize cash flow, reduce credit risks, and improve customer relationships by ensuring timely follow-ups and transparent billing practices.
In summary, accounts receivable is a vital financial indicator that reflects incoming revenue. Tracking AR regularly helps businesses maintain financial stability and make informed decisions to support growth.