Accounts Receivable Definition | Business Lending Glossary

Definition

Money owed to a business by its customers for goods or services already delivered but not yet paid for.

Explanation

Accounts receivable (AR) represents the outstanding invoices a business has issued but not yet collected. It appears as a current asset on the balance sheet because it is expected to be converted to cash within a normal business cycle, typically 30 to 90 days. For lenders, AR is a measure of a business's liquidity and cash conversion efficiency. A business with a large AR balance relative to its revenue may be experiencing slow collections, which can create cash flow pressure even if the underlying business is profitable.

Example

A landscaping company completes a $15,000 commercial maintenance contract in March and sends an invoice with net-60 payment terms. That $15,000 sits in accounts receivable until the client pays in May.

Why It Matters

Accounts receivable is the primary collateral for invoice factoring and AR financing. Lenders who offer these products advance a percentage of your outstanding invoices — typically 70% to 90% — and collect directly from your customers when invoices come due. Strong AR can unlock funding even when a business lacks physical collateral or has limited credit history.

Frequently asked questions

What is the difference between accounts receivable and accounts payable?

Accounts receivable is money others owe your business. Accounts payable is money your business owes to suppliers and vendors. Both appear on the balance sheet — AR as an asset, AP as a liability.

Can I use accounts receivable to get a business loan?

Yes. Invoice factoring and AR-based lines of credit use your outstanding invoices as collateral. Lenders advance a percentage of your AR balance, giving you immediate access to cash tied up in unpaid invoices.