accounts receivable
Also called: receivables, AR
Money customers owe for what has already been delivered and invoiced, such as a company that pays for corporate lessons 60 days after the invoice.
Accounts receivable (receivables, AR) is money customers owe for work already delivered and invoiced: a company that pays for its staff's lessons 60 days after the invoice, a client billed at the end of a project. On the balance sheet it's an asset; in practice it's a loan from you to your customer, interest-free unless you price it.
That loan has a cost even when the customer pays exactly on time. While you wait, you have already paid the people who did the work, so the money has to come from somewhere: your own cash, which could earn or save something, or a credit line that charges interest. A simple estimate: cost of waiting = invoice × annual cost of money × extra days ÷ 365.
Receivables also carry risk. Terms are a promise, not a fact: some clients pay late and a few never pay. That's why companies track how old each unpaid invoice is, measure DSO, and use tools like early-payment discounts, deposits or more frequent invoicing. And because growing receivables absorb cash, a line sold on payment terms needs funding as it grows, however profitable it is.
Example
A logistics company asks Klasna for 240 English lessons a month at 800 UAH, invoiced quarterly, with 60 days to pay instead of 30. One quarter's invoice: 240 × 3 × 800 = 576,000 UAH. Klasna's credit line costs 24% a year.
So 60-day terms are worth about 816 per lesson instead of 800. The reverse offer works too: 2% off for paying on day 10 instead of day 60 costs Klasna 576,000 × 2% = 11,520, which as a yearly rate is 2 ÷ 98 × 365 ÷ 50 = 14.90%. That's cheaper than borrowing at 24%.
Common mistakes
- Treating longer terms as free. Every extra day is money you lend the client.
- Calling a punctual client costless. On-time payment on 60 days still funds two months of work.
- Counting receivables as cash. Until it's paid, it can't pay salaries.
- Not tracking who is late. Without a list of unpaid invoices by age, late payers surface only when the bank is empty.
Learn it in the course
- Working capital: who pays whom first · Prepayments, payouts and invoices: the cash conversion cycle, working capital on one date, when negative working capital funds growth and why other lines eat cash.
- Receivables and payment terms · What a 60-day payment term really costs, how to put it in the price, when an early-payment discount pays off, and how DSO shows late payers.
- The cash flow statement and the three financial statements · How the three financial statements link, with a cash flow statement example: operating, investing and financing cash, built from profit with the indirect method.