What it means
Accounts receivable, often shortened to AR, arises when a business sells on credit and sends an invoice with payment terms such as net 30. The amount stays on the books until the customer pays or the business writes it off as a bad debt. It differs from accounts payable, which is money the business owes to its own suppliers.
Why it matters when you buy software
Unpaid invoices tie up cash, so a company can show a profit and still struggle to cover its bills. When comparing accounting software, check how a tool handles invoicing, payment reminders, aging reports and bad debt write-offs, and whether those features sit on a paid plan tier rather than the entry plan.
How it works in practice
A sale creates an invoice, and the software records a debit to accounts receivable and a credit to revenue. When the customer pays, the payment clears the receivable against cash. An aging report groups open invoices by how overdue they are, which shows where collection effort is needed.
See also: Accrual basis, Bank reconciliation and the glossary index.