What is Accounts Receivable?

Simply stated, accounts receivable is what customers still owe a business. More technically put, accounts receivable 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.

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 role and responsibilities

As an accounts receivable specialist, your first responsibility is to respond to basic client inquiries and other clerical tasks related to maintaining the accounts receivable records for your organization. You may also:

  • Prepare customer statements, bills and invoices, and reconcile expenses to the general ledger
  • Calculate and post receipts to appropriate general ledger accounts and verify details of transactions, such as funds received and total account balances
  • Prepare monthly receivable statements
  • Compile and sort documents, prepare and post invoices and credit and debit memos
  • Make copies of all checks, complete deposit slips and make bank deposits
  • Work with collections personnel to verify status of delinquent accounts and solicit payments on overdue accounts
  • Provide backup support to other groups in the accounting department, type periodic reports and perform other general administrative duties
  • Rely on instructions and pre-established guidelines to perform the functions of the job
  • Work under immediate supervision
  • Typically report to a supervisor or manager

Accounts receivable skill set

  • Organization and prioritization skills
  • Attention to detail
  • Problem solving skills
  • Ability to complete work on schedule
  • Customer service skills

Qualifications

Depending on the job you want, you may need:

  • High school diploma
  • 0-2 years of experience in the field or in a related field
  • Familiarity with accounting programs and software
  • Basic understanding of principles of finance, bookkeeping and accounting

Accounts Receivable Salary

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

Prepare for these 5 accounts receivable interview questions

Get ready for your interview by practicing your answers to these common questions. Remember to be honest instead of just saying what you think the interviewer wants to hear.

  1. What is a customer master record?
  2. How is a journal entry recorded?
  3. What is factoring?
  4. What information would you include on a bill for services?
  5. What are the goals of accounts receivable?

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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

Accounts Receivable vs Accounts Payable

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. 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.

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