CompanyGraph
Measures the increase or decrease in uncollected customer payments, exposing whether the company's cash conversion is keeping pace with revenue recognition.
Change in accounts receivable reflects how much money owed by customers increased or decreased. An increase means revenue was recognized but cash was not yet collected.
Change in accounts receivable represents the increase or decrease in money owed to the company by customers who purchased goods or services on credit. In cash flow analysis, this change is crucial because revenue recognition and cash collection occur at different times—you can book a sale today but not receive payment for 30, 60, or 90 days.
How it affects cash flow:
Increase in AR: Cash outflow (sales made but not yet collected) Decrease in AR: Cash inflow (collected more than current sales)
Example:
Beginning AR: $50 million Ending AR: $65 million Change in AR: +$15 million (increase) Cash Flow Impact: -$15 million (subtract from net income)
Why receivables changes matter:
- Cash conversion: Rising AR means profits aren't converting to cash
- Growth indicator: Sales growth naturally increases receivables
- Collection efficiency: Faster collections improve working capital
- Credit risk: Large receivables represent customer default risk
Key metrics to monitor:
- Days Sales Outstanding (DSO): Average collection period; AR / (Revenue/365)
- AR turnover: Revenue / Average AR; higher is better
- AR growth vs. revenue growth: AR growing faster signals collection slowdown
Warning signs:
- DSO increasing: Customers taking longer to pay; may indicate credit quality issues
- AR outpacing revenue: Sales may be channel-stuffed or collection problems emerging
- Concentration risk: Large receivables from few customers increases risk
- Aging deterioration: More receivables in older buckets suggests collection difficulty
Healthy patterns:
- Stable DSO: Consistent collection period over time
- AR proportional to revenue: Receivables growing in line with sales
- Seasonal patterns: Expected fluctuations in seasonal businesses
Always analyse receivables changes in context. A growing business will naturally have rising AR. The key is whether collection efficiency remains stable and whether customers are paying within expected terms.