Accounts Receivable

What It Means

Accounts Receivable (often referred to as just "AR") is a common asset account that represents the total sum of money a company is owed by its customers. It is displayed as a Current Asset on the Balance Sheet.

Why It’s Important

Accounts Payable represents an expected source of Cash in the near future. The company has already provided a good or service, and is expecting to be paid for it later. When AP increases, it could mean that the company is selling more goods or services on credit, signaling growth or a shift in how the company allows customers to pay, or it could be a sign that the company's customers are taking longer to pay off their invoices. Conversely, decreasing AP is a source of Cash as the the company collects on the debt it is owed.

Potential Buyers will want to look closely at AR over the past several years to understand how the balance of this account has varied over time relative to sales. What might be considered a healthy range for AR can vary heavily from industry to industry and depends on a number of factors, including the size of a company’s customers and the relationships that have been developed with them over time.

Related Terms

Return to List of Terms

Articles

Follow the Money: Sources of Capital Used to Buy a Business

In this article, we will explore some of the more common sources of funding used to purchase a business, along with a few brief but important considerations for both buyers and sellers.

[Updated] Should the election results affect when you sell your business?

[Updated 2023] Governmental control changes hands every few years here in the US, but should shifts in the political winds affect the timing of a sale? The democratic party party seized control of the white house and won a narrow majority in both legislative houses in the 2020 election. We’ll explore a few ways that the election results might affect business owners contemplating an exit, for better and for worse.

What is an “add-back” expense anyway?

Expense add-backs are a common adjustment made to the P&L of companies that are positioned for sale. They are intended to represent expenses that would not have affected the company under different management. Legitimate add-backs can provide a significant boost to a company’s valuation.

5 ways the COVID-19 pandemic might affect the sale of your business

The COVID-19 pandemic has proven to be boom or bust for many businesses. In this article, we’ll explore 5 ways that the resulting economic climate is likely to affect the sale of a business, for better or worse.

Should you hire a business broker to sell your business?

Explore some key questions to ask when considering whether it makes sense to hire a business broker to sell your business.

Accounts Receivable

What It Means

Why It’s Important

Related Terms

Related Posts