Accounts receivable is the total outstanding amount customers owe you for work already performed or products already shipped.

How it works

Enterprise SaaS and services businesses invoice on net-30, net-60, or longer terms. When finance recognizes revenue, the matching entry often increases AR until payment clears. A company with $1 million in monthly billings and sixty-day terms can carry roughly two months of sales in AR—cash lags the income statement.

Collections, credit policies, and bad-debt reserves determine how much of AR converts to cash. Startups sometimes offer annual prepay discounts to shrink AR and fund operations without debt. Venture lenders may advance against eligible receivables in asset-based facilities, though that is more common beyond early stage.

Why it matters

• Founders: Rising AR without rising cash can mask a burn problem. Watch days sales outstanding (DSO)—average days to collect—and chase overdue accounts before they become write-offs.
• Investors: Due diligence compares revenue growth to AR and deferred revenue. A spike in AR with flat cash may signal aggressive booking or channel stuffing.
• Operators: Billing accuracy and dunning emails directly affect runway. Broken invoicing is a silent killer.

Common mistake

Celebrating record revenue while AR balloons and collections slip. You are financing customers for free; eventually churn or disputes turn paper revenue into bad debt.

Related ideas

Deferred revenue, cash conversion cycle, DSO, and working capital management.