Investing term

What is Accounts receivable (A/R)?

Money customers owe the company for goods or services already delivered but not yet paid.

Accounts receivable (A/R) is money customers owe a company for goods or services it has already delivered but not yet been paid for. It sits on the balance sheet as a current asset, because the company expects to collect the cash soon — usually within weeks or a couple of months.

A/R is worth watching relative to sales. If receivables grow much faster than revenue, it can mean the company is booking sales it's struggling to collect — perhaps by extending generous credit to prop up growth, or because customers are in trouble. Rising receivables also tie up cash: the profit is recorded, but the money hasn't arrived, which is one way a profitable company can still be short of cash.

Sales booked, cash not yet in
100125150startlaterreceivablessalesreceivables outrunning sales — a warningReceivables far outpacing sales warns of collection trouble or aggressive revenue recognition.

Accounts receivable is money customers owe for goods already delivered. Watch it versus sales: receivables ballooning faster than revenue can signal uncollectible sales or customers in trouble.

For example

A company reports strong sales, but its accounts receivable jump 40% while revenue rises 10% — a hint that it's booking sales it may struggle to collect.

Learn it by doing

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Why it matters to you

Accounts receivable matters because it's a bridge — and sometimes a gap — between recorded profit and actual cash. Watching it relative to revenue is a simple early-warning check: receivables ballooning faster than sales can signal aggressive revenue recognition, collection problems, or customers in distress, all of which threaten the cash a business runs on. It's a favourite red flag for analysts precisely because it can reveal trouble the income statement hides.

⚠ Ignoring receivables growing faster than sales

A jump in accounts receivable far outpacing revenue growth is a classic warning sign — the company may be recognising sales it can't easily collect, or its customers may be struggling to pay. Focusing on the reported sales while ignoring the ballooning receivables can miss a cash-collection problem building beneath a healthy-looking top line.

Frequently asked questions

What is accounts receivable?

Accounts receivable (A/R) is money owed to a company by customers for goods or services already delivered but not yet paid for. It appears as a current asset on the balance sheet, since the company expects to collect the cash soon, typically within weeks or a couple of months.

Why watch accounts receivable relative to sales?

Because receivables growing much faster than revenue can signal trouble — the company may be booking sales it can't easily collect, extending risky credit to boost growth, or dealing with customers in financial distress. It's an early warning that recorded profit may not turn into cash.

How does accounts receivable affect cash flow?

When a sale is made on credit, profit is recorded but cash hasn't arrived — it sits in accounts receivable. Rising receivables therefore tie up cash, which is one way a profitable company can still be short of it. Collecting receivables converts them into the actual cash the business runs on.

Related terms

AccrualsAccounting entries that record revenue or expense before cash actually moves.Annual reportThe yearly disclosure that includes audited financials, MD&A, and footnotes — the primary source for serious investors.Balance sheetThe 'photo' statement — what the company owns, what it owes, and what's left for owners, on a single date.Capital expenditures (CapEx)Money spent on long-lived assets — buildings, equipment, software, improvements.
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