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Accounts receivable are the funds customers owe the company for products or services that have been invoiced. These usually exist when the goods or services are given to the customer on credit.

Accounts receivable are listed as current assets on the balance sheet and include invoices that customers owe for goods purchased, or services availed on credit. This amount will be credited to the company’s account.

AR is considered revenue as the amount that will come to the company. AR is considered revenue as the amount that will come to the company.

Accounts receivable turnover ratio, or ART, is the number of times a business collects its accounts receivable balance in a year. It represents an organization's effectiveness in collecting outstanding amounts from its customers.

The ART is directly proportional to the efficiency of the organization. The higher the ART, the more efficient the organization, and a lower ratio implies the organization is inefficient. This comparison is usually done within the same industry. A decent ART is around 7.8.

There are three types of accounts receivable:

Trade receivable/Accounts receivable: The accounts receivable, also known as trade receivables, is the outstanding amount owed to an organization by its clients for their goods or services. It reflects the amount the company is bound to receive.

Notes receivable: This is similar to the traditional accounts receivable, except a two-month payment window is given to the customer. However, if both parties agree, this timeline can be extended to a year or more.

Other receivables: These receivables consist of interest receivables, salary receivables, employee advances, tax refunds, loans, and advances given to employees and other companies.

Accounts receivable can directly impact an organization's cash flow. It showcases the amount owed by the customer to the company and, if not paid timely, can affect the financial health of a business. Keeping track of your company’s accounts receivable can help you with better cash flow management.