Accounts Receivable
What is Accounts Receivable?
Accounts receivable (AR) represents the amount of money customers owe you after they've received products or services but haven't yet paid. It's recorded as a current asset on your balance sheet and reflects sales made on credit terms. The larger your AR, the more cash is tied up in waiting for payment.
Why It Matters
AR directly impacts your cash flow—the lifeblood of any startup. If your AR grows while revenue looks strong, you're building an illusion; your actual liquidity is suffering. Large AR balances also signal operational friction: unclear payment terms, weak collection processes, or customers in financial distress. Managing AR aggressively is often the fastest way to improve actual cash position.
How to Apply
Set clear payment terms upfront (net-30 or net-15, not open-ended). Invoice immediately upon delivery—delays compound cash drag. Track AR aging reports weekly to spot slow payers before they become bad debt. Build a simple collection process: automated reminders at day 15, personal follow-up at day 25, escalation at day 35. For high-value customers, require deposits or milestone-based payments. Consider early payment discounts (1% off for payment within 10 days) if cash crunch is real.
Common Mistakes
- Treating AR as 'good revenue' when it's actually tied-up cash with collection risk
- Waiting 45+ days to collect because you're conflict-averse or understaffed
- Not tracking which customers are chronically late until your reserves run dry
How IdeaFuel Helps
IdeaFuel's financial-modeling tools help you project AR levels by customer segment and payment pattern, flag when AR growth outpaces revenue growth, and scenario-plan working capital impacts.