What is accounts receivable?

Many early-stage founders encounter accounting terminology without a clear sense of what specific terms mean or why they matter in practice. Accounts receivable is one of the terms that appears regularly in financial reports, accounting software, and conversations with accountants — and understanding it clearly is useful for any founder who invoices customers and needs to manage what they are owed.

Accounts receivable refers to the money owed to a business by its customers for goods or services delivered but not yet paid for. It represents a current asset on the balance sheet — money the business is entitled to receive — and is distinct from cash actually held. High accounts receivable can indicate strong sales activity but also signals that cash has not yet been collected. Managing accounts receivable effectively through clear invoicing, consistent follow-up, and appropriate payment terms directly affects cash flow.

Accounts receivable ageing — how long invoices have been outstanding — is one of the most useful indicators of cash flow health in a business trading on credit. The longer invoices sit unpaid, the greater the risk they will not be collected in full. Reviewing the ageing of outstanding invoices regularly is a practical early warning system. Our guide to managing accounts receivable covers the key processes for UK businesses.