Accounts Receivable

Accounts receivable summary: 

• Bills that you pay to a creditor are considered accounts receivable for that company. It’s money they plan to receive.

• Debt collectors and collection agencies follow up on unpaid bills or delinquent accounts receivable. 

• Understanding the idea of accounts receivable can help you get through the debt collection process.

Accounts Receivable Definition and Meaning

Accounts receivable are payments or money that a bank, business, or creditor expects to receive. (In contrast, the bills they have to pay are considered their accounts payable.) If you owe money to a creditor, your future payments are considered accounts receivable for that creditor—the creditor is waiting to receive money for your account. 

When customers don’t pay their bills on time, creditors will take action to encourage people to pay faster or get overdue money from the creditor’s accounts receivable. Sometimes collection agencies pursue accounts receivable to get the money that they are owed. The work of debt collection is also known as accounts receivable collection or accounts receivable management.

Key Aspects of Accounts Receivable 

If you have credit card debt or other debt, you probably don’t call it your own accounts payable in everyday life. But to your creditors, your monthly loan payments or other bills are the company’s accounts receivable.

Accounts receivable is an important term in business. It’s money that the business expects to get in the future. People see their bills as money that they have to pay. Creditors see your bills as money that they expect to receive. 

When banks or other creditors issue loans or credit cards, or when businesses sell a product or service and send the customer a bill, they are counting on receiving future payments. Accounts receivable are a big part of companies’ budgets and cash flow. When people fall behind on debt payments, creditors could lose money. Slow-paying or delinquent accounts turn a creditor’s accounts receivable from a positive into a problem. 

Types of Accounts Receivable

Most people won’t notice the phrase accounts receivable on letters or emails from their bank or creditors. But if you owe money to a creditor, that company considers your account to be part of their accounts receivable. 

Here are a few types of bills and loans that are your creditor’s accounts receivable: 

• Credit card account

• Personal loan 

• Line of credit 

• Retail store card 

• Medical bills 

• Bills for services you hire but pay for later

• Bills for products you purchase but pay for later

Accounts Receivable: Real-Life Examples

Let’s say you have a neighborhood landscaping company that mows your lawn and tends to your yard twice a month. They also work for many of your neighbors. You’ve hired them, but you always pay them after the end of the month, when their work has been done. During the month, the fees they expect to get from you and your neighbors are their accounts receivable.