Accounts receivable is the money you’re owed by customers. Once you send an invoice (or bill), it becomes part of your accounts receivable – until it’s paid.
Accounts receivable is the name given to both the money that’s owed, and the process of collecting it. So the accounts receivable process includes things like sending invoices, watching to see if they’ve been paid, taking steps to chase payment, and matching payments to invoices (also known as invoice reconciliation).
The accounts receivable process is sometimes called bills receivable, and some people simply call it invoicing.
If an invoice hasn’t been paid by its due date, you start to age it. You do this simply by counting each day that’s passed since it was due. If it was due four days ago, you give it an age of 4 days.
What does an ageing report do?
An ageing report shows all the past-due invoices, from least overdue to most overdue. At a glance, you can see which bills you’re waiting on, and which have been outstanding the longest.
The more an invoice ages, the less likely it is to get paid at all, so review an updated report often and act decisively. Decide what steps you’ll take to recover debts as they age. Will you email at day 1? Will you call at day 3? What’s your next move? and when will you make it?
Is accounts receivable an asset?
Accounts receivable is money you’re owed, which makes it an asset. In fact your invoices are so valuable that some companies will even buy them off you.
Once an invoice is paid, it’s no longer an asset – it becomes cash in the bank, which is even better. And if you never get paid, you’ll ultimately write off the invoice as a bad debt. Once it’s written off it’s no longer considered an asset.
Can sell my invoices?
Invoices are money you’re owed. If you sign them over to someone else, they can collect the money. Some finance companies will buy invoices from businesses that can’t wait for the customer to pay. This is called accounts receivable financing, invoice financing, or invoice factoring. These finance companies realise that older invoices are less likely to get paid. So you probably won’t find anyone willing to buy your really old invoices.