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What Is Accounts Receivable (A/R)? | Speed Commerce

What Do You Mean by Accounts Receivable?

3PL Glossary > Accounts Receivable (A/R)

What Do You Mean by Accounts Receivable?

An accounts receivable, often referred to as A/R is a financial term that represents the outstanding amount of money owed to a business by its customers or clients for goods or services provided. It is considered an asset on the company's balance sheet, representing future cash inflows resulting from credit sales.

What Are the Key Aspects of Accounts Receivable?

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Effectively managing accounts receivable is important for maintaining healthy cash flow and sustainable business operations. It requires establishing clear credit policies, setting reasonable payment terms, implementing robust invoicing and collection processes, and utilizing appropriate documentation and tracking systems.

Regular monitoring of accounts receivable metrics, such as average collection period, aging, and days sales outstanding, helps evaluate the efficiency of the collection process and identify areas for improvement. It also aids in making informed business decisions and strategic planning.

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Accounts receivable represents the money owed to a business by customers, while accounts payable represents the money that the business owes to its suppliers or vendors. They are both vital components of managing cash flow and financial operations.

One illustration of accounts receivable would be an electric company that invoices its customers after they have received their electrical supply. The electric company acknowledges an accounts receivable for outstanding invoices while it awaits payment from its customers. Other examples include transactions with a customer utilizing store credit, subscription, or installment payment that is scheduled for settlement subsequent to the delivery of goods or services.

Businesses can manage accounts receivable effectively by implementing clear credit policies, maintaining accurate records, establishing efficient invoicing and collection processes, monitoring aging regularly, and establishing proactive communication with customers.

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