What is Accounts Receivable?

Simply stated, accounts receivable is what customers still owe a business. More technically put, the accounts receivable definition is the sum of outstanding balances owed to a business by third parties for goods delivered or services rendered, purchased on credit with terms of one year or less. Accounts receivable, often abbreviated “A/R,” or referred to as “trade receivable” or simply, “receivables,” is therefore considered a short-term asset on businesses’ balance sheets.

How is it monitored?

Businesses extend short-term, interest-free credit to customers to attract more sales. However, extending too much credit or extending it to parties unable to pay can hurt a business. Companies can measure and monitor their efficiency in collecting receivables by two chief measures: the accounting receivable ratio and accounts receivable days.

Accounts Receivable Turnover Ratio

The accounting receivable ratio, also called the accounting receivable turnover ratio, tells you how many times over a given period a business collects its receivables. The higher the number, the more efficient a company is at collecting receivables. However, a very high number may indicate an overly onerous credit policy that potentially drives away sales. Inversely, a very low number indicates an overly lax credit policy or ineffective collections method. The ratio is expressed as follows:

Accounts Receivable Turnover Ratio =
Net Credit Sales/Average Accounts Receivable

  • “Net credit sales” is the sum of all sales on credit less returns and less allowances.
  • “Average accounts receivable” is the sum of starting and ending accounts receivable over a set period of time, divided by two.

Accounts receivable days, also called days sales outstanding (DSO), is the average number of days it takes a business to collect payment on its credit sales.

It is expressed as follows:

Accounts Receivable Days =
(Accounts Receivable/Total Credit Sales)
x Number of Days in Cycle

Accounts Receivable Specialist Skill Set

  • Attention to detail
  • Understanding of basic accounting principles and SFAS rules
  • Analytical and problem-solving skills
  • Self-motivated and collaborative
  • Understanding of accounting software and programs

A/R Specialist Experience & Qualifications

Your background may have to include:

  • 0-2 years of experience in the field or in a related field
  • Bachelor’s Degree in Accounting or a related field
  • Certified Public Accountant
  • Master’s Degree in Accounting or Business Administration

Accounts Receivable Specialist Job Duties

Accounts Receivable Specialists provide financial information about the organization to management. Accounts Receivable Specialists must apply accounting principles and handle work that is analytical, evaluative, and advisory in nature and that requires an understanding of both accounting theory and practice. The accounts receivable specialist also:

  • Readies and maintains financial and business transactions
  • Plans the manner in which account structures should be developed or modified
  • Utilizes knowledge of the fundamental doctrines, theories, principles and terminology of accountancy, and often entails some understanding of such related fields as business law, statistics and general management
  • Ensures the adequacy of the accounting system as the basis for reporting to management
  • Analyzes the effects of transactions upon account relationships
  • Considers the need for new or changed controls
  • Evaluates alternative means of treating transactions
  • Projects accounting data to show the effects of proposed plans on capital investments, income, cash position, and overall financial condition

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Accounts Receivable Salary

Job Average Base Salary Years of Experience Minimum Credential Preferred
Accounts Receivable Clerk 40,444 0-2 HS Diploma
Accounts Receivable Specialist 41,570 0-2 HS Diploma
Accounts Receivable Specialist, Sr. 52,678 2-4 HS Diploma
Supervisor 57,321 4-7 Bachelor’s Degree
Accounts Receivable Manager 81,251 7 or more Bachelor’s Degree

Accounts Payable vs Accounts Receivable

What is the difference between accounts receivable and accounts payable? You can think of A/R and A/P, and the job responsibilities involved with each, as mirror images of the other. Accounts receivable is a collection of current assets a company has a right to collect; accounts payable is a collection of current liabilities a company is required to pay ( see accounts payable job description). A/R professionals handle the billing of customers and the monitoring and collection of those bills in a timely fashion. The job is more externally focused. A/P professionals handle the verification of and payment of bills the company owes to third parties in a timely fashion. The job is more internally focused. But both accounts receivable and accounts payable must work together to ensure the company has collected sufficient funds from its customers in order to meet its own obligations on a continual basis.

Similar positions

  • Accounts payable specialist
  • Billing specialist
  • Accountant
  • Bookkeeper

Career Advancement

Depending on the path, accounts receivables can become:

  • Senior accounts receivable specialist
  • Accounting clerk
  • Payroll clerk
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