CompanyGraph
Measures revenue that has been recognized but not yet collected in cash, exposing the gap between reported sales and actual cash conversion.
Accounts receivable is money owed to the company by customers who have not yet paid. Rising receivables can mean growing sales, but also that cash collection is slower.
Accounts receivable represents money owed to the company by customers for goods or services delivered on credit but not yet paid for. This current asset reflects sales that have been recognised as revenue but haven't been collected in cash. Managing receivables effectively is crucial for working capital and cash flow, as outstanding receivables tie up capital that could be used elsewhere.
Types of receivables:
- Trade receivables: Amounts owed from normal business sales
- Notes receivable: Formalised debt with written promissory notes
- Other receivables: Non-trade amounts (employee advances, insurance claims)
Balance sheet presentation:
Accounts Receivable, net = Gross Receivables - Allowance for Doubtful Accounts
The allowance for doubtful accounts (or bad debt reserve) reduces receivables for estimated uncollectable amounts.
Why accounts receivable matters:
- Working capital component: Significant portion of current assets
- Cash conversion: Must be collected to realise revenue as cash
- Credit policy indicator: Higher AR may indicate looser credit terms
- Customer health signal: Rising AR may indicate customer payment difficulties
Key metrics:
- Days Sales Outstanding (DSO): (AR / Revenue) × 365; average collection period
- AR Turnover: Revenue / Average AR; how often AR is collected annually
- AR as % of Revenue: Higher percentage means more capital tied up
Analysing receivables:
- DSO trend: Increasing DSO may indicate collection problems
- AR growth vs. revenue growth: AR growing faster than revenue is concerning
- Aging schedule: More receivables in older buckets suggests collection risk
- Bad debt expense: Rising write-offs indicate credit quality deterioration
Warning signs:
- DSO spike: Sudden increase in collection days
- Large customer concentration: Risk if major customer defaults
- Aging deterioration: More receivables becoming overdue
- Revenue recognition concerns: AR growing without real sales (channel stuffing)
Efficient receivables management balances competitive credit terms with timely collection. Track DSO trends and compare to industry peers to assess collection effectiveness.
How it relates
Cash & Cash EquivalentsCash and cash equivalents combines cash and near-cash investments. It shows how much very liquid money the company has available to meet obligations or seize opportunities.+Other Short-term InvestmentsOther short-term investments are financial assets that can usually be sold or converted into cash within a year, such as marketable securities. They add to the company's flexibility beyond pure cash.+Accounts Receivable+InventoryInventory is the value of goods the company has produced or bought and not yet sold. Too much inventory can tie up cash, while too little can lead to lost sales.=Total Current AssetsTotal current assets includes cash and other assets that are expected to be turned into cash within a year, like receivables and inventory. It is a key part of the company's short-term financial strength.
Where it fits
Accounts Receivable→Change in Accounts Receivable (CF)Change in accounts receivable shows how much customer invoices have increased or decreased during the period. When receivables grow, the company has less cash collected; when they shrink, more cash has come in.
Accounts Receivable÷RevenueRevenue is the total amount of money the company earned from selling its products or services. It is the top-line number that reflects the overall size of the company's business.→Collection EfficiencyCollection efficiency measures how quickly a company collects payment from customers, typically expressed as days sales outstanding (DSO) or the receivables turnover ratio.