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What is Accounts Receivable?

Malcolm Tatum
Updated May 16, 2024
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One of the basics of operating a business is having a means for keeping up with the money that is owed by clients as well as maintaining an accurate record of money received from clients that is to be applied to the amounts they currently owe. Money owed is known as accounts receivable. Most companies have a department dedicated to this area, and it is responsible for creating and sending bills, receiving and processing payments, and tracking both what money is on hand and what is still due.

The basic purpose of accounting is to ensure that any functioning entity has a concise picture of what is happening financially at any given time. An accounts receivable department contributes to the accuracy in part by billing customers for services or goods rendered. Typically, it is this department that keeps up with the billing information and customized billing needs of the client.

A large customer, for example, may receive a percentage discount on monthly goods or services it purchases, based on the volume of business conducted with the company. The accounts receivable staff would maintain that discount information as part of that customer’s billing profile, ensuring that all invoices to that client reflect the proper discount. Often, this department has a great deal of input on the look of the invoice, what information is included, and how the information is organized.

Along with creating and distributing invoices to customers, this department is often responsible for receiving payments on those invoices and making sure the money is applied correctly. While some departments tend to post a payment to a customer and apply it to the oldest outstanding invoice, it is more common for a payment to be applied to a specific invoice, even if it is not the oldest outstanding invoice for that client. This allows staff members to identify aging on older invoices and work with the client to resolve any issues that may be preventing the payment of invoices that are older than the standard terms of payment.

Accounts receivable also works closely with the accounts payable arm of the accounting process. Just as clients are expected to pay for goods and services rendered, so the company is expected to pay outstanding invoices to their vendors in a timely manner. It's important that information about the amount of usable revenue is on hand before payments are made. With that data available, the accounts payable department is able to schedule and make payments on behalf of the company.

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Malcolm Tatum
By Malcolm Tatum , Writer
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Discussion Comments

By anon109991 — On Sep 10, 2010

very short and simple to understand.

By anon107061 — On Aug 28, 2010

it is very useful. A very good explanation on the accounts receivable topic. Thanks.

By anon103016 — On Aug 10, 2010

it is very useful. thank you so much.

By anon94331 — On Jul 08, 2010

can any one tell me accounts related interview questions?

By anon90187 — On Jun 14, 2010

could you please explain about what is the difference between accounts payable, receivable and bills payable and receivable?

By anon83208 — On May 10, 2010

could you please explain accounts receivable more easily? Thanks.

By anon82537 — On May 06, 2010

easy to understand. thank you for answering my questions regarding this topic.

By anon76740 — On Apr 12, 2010

a very good explanation on accounts receivable topic. thank you very much.

By anon67083 — On Feb 23, 2010

A very good explanation on Accounts Receivables topic. Thank you. asheesh

By anon61868 — On Jan 23, 2010

Thanks for the explanation. Very simple and straight to the point.

By anon46114 — On Sep 23, 2009

very simple and inforamative. Thank you.

By anon42282 — On Aug 20, 2009

very simply and eloquently put. thanks!

By anon36142 — On Jul 10, 2009

A very good explanation on Accounts Receivables topic. Thank you.

By mrkev25 — On Sep 28, 2008

this is by far the best explanation for accounts receivable i have ever read in my life! kudos!

Malcolm Tatum

Malcolm Tatum


Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
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