Accounts Receivable

What Is Accounts Receivable?

Accounts receivable (AR) is the money customers owe your company for goods or services delivered on credit. When you sell something and allow the customer to pay later, the amount owed is recorded as accounts receivable—a current asset on the balance sheet.

Accounts receivable represents:

• Invoices sent but not yet collected
• Credit extended to customers
• Future cash inflow
• A key working capital component

The Accounts Receivable Process

1. Credit Approval

Before extending credit:

• Evaluate customer creditworthiness
• Set credit limits and terms
• Document credit decisions

2. Order and Delivery

Goods shipped or services provided:

• Order processed and fulfilled
• Delivery confirmed
• Documentation retained

3. Invoice Generation

Invoice created and sent:

• Invoice generated from order/shipment
• Sent to customer (mail, email, portal)
• Posted to AR subledger

4. Payment Terms

Standard terms define expectations:

• Net 30: Payment due in 30 days
• 2/10 Net 30: 2% discount if paid in 10 days
• Due on Receipt: Payment expected immediately

5. Collections

Managing payment receipt:

• Monitor aging reports
• Send payment reminders
• Follow up on past-due accounts
• Escalate collection efforts as needed

6. Cash Application

Payments received and applied:

• Identify which invoices payment covers
• Apply payment to correct invoices
• Handle partial payments and deductions
• Reconcile to bank deposits

7. Reconciliation

AR subledger reconciled to GL:

• Individual customer balances verified
• Total AR agrees to control account
• Aging analyzed for collectibility

Key AR Metrics

Days Sales Outstanding (DSO) Average time to collect payment:

DSO = (Average AR / Revenue) × Days in Period

Lower DSO = faster collection = better cash flow

AR Turnover How often AR is collected during a period:

AR Turnover = Net Credit Sales / Average AR

Collection Effectiveness Index (CEI) How well collections team performs:

CEI = (Beginning AR + Monthly Sales - Ending AR) /
      (Beginning AR + Monthly Sales - Ending Current AR) × 100

Bad Debt Percentage Uncollectible accounts as percentage of sales:

• Target: Under 1-2%
• Concerning: Over 5%

AR Aging Analysis

AR is typically aged by how long invoices have been outstanding:

Aging Bucket	Typical Action
Current (0-30 days)	Monitor
31-60 days	First reminder
61-90 days	Follow-up calls
91-120 days	Escalated collection
Over 120 days	Consider write-off

Aging analysis helps:

• Identify collection problems early
• Prioritize collection efforts
• Estimate bad debt reserves
• Evaluate credit policies

Common AR Challenges

Slow collections: Customers paying beyond terms

Cash application complexity: Matching payments to invoices

Disputes and deductions: Customers taking unauthorized deductions

Bad debt: Customers who can’t or won’t pay

Manual processes: Paper invoices, spreadsheet tracking

Visibility gaps: Not knowing who owes what in real-time

How Go Fig Helps with AR

Go Fig connects to your AR system to provide:

Real-time visibility: See AR across all entities in one view

Cash flow forecasting: Project collections based on AR aging and payment patterns

Customer analytics: Analyze payment behavior by customer segment

DSO trending: Track collection performance over time

Exception identification: Surface at-risk accounts and unusual patterns

Collection prioritization: Focus efforts on highest-impact accounts

Reconciliation automation: Match AR subledger to GL automatically