Key Takeaways
- Yes, accounts receivable is an asset—specifically a current asset because it’s expected to turn into cash within a year.
- Accounts receivable represents money owed to your business by customers who purchased goods or services on credit.
- Managing A/R properly ensures healthier cash flow, better financial statements, and fewer surprises at tax time.
- Recording, tracking, and analyzing A/R is crucial for evaluating the financial strength of your field service business.
- Common mistakes include overestimating collectible accounts and neglecting aging reports.
If you’ve ever squinted at a balance sheet and wondered, “Wait, is accounts receivable an asset or a liability—or just some mystical number floating around?” —you’re not alone. For field service businesses especially, where jobs are billed after completion, understanding where A/R fits in your financial picture is critical.
In this no-fluff guide, we’ll lay out why accounts receivable is considered an asset, how it affects your cash flow and business value, and the smart moves you should be making to manage it better.
What is Accounts Receivable, Exactly?
In simple terms, accounts receivable (A/R) is the money customers owe your business for services you’ve already delivered but haven’t been paid for yet.
Quick Example
You install a new HVAC system for a commercial client. You send the invoice for $8,000 due in 30 days. Until they cut that check, that $8,000 sits on your books as an accounts receivable.
❗ Important point: You’re legally entitled to that money—it’s not a “hope” or a “maybe” unless you’re dealing with seriously shady customers.
Why Accounts Receivable Is an Asset
1. It Represents Future Cash
Assets are resources owned by your business that provide future economic benefit. Accounts receivable is money coming your way—it just hasn’t arrived yet. You’ve done the work; you’ve delivered the value. All that’s missing is the actual payment.
Short Version:
- Cash today = Asset.
- Cash expected tomorrow = Still an Asset.
⚠️ A heads up: Using an accrual accounting method instead of a cash accounting method can add complexity to your bookkeeping. To avoid common pitfalls, check out our article, Cash vs Accrual Accounting: The Difference Could Kill Your Business.
2. It Falls Under Current Assets
Current assets are assets you expect to convert into cash within one year. Because most invoices are due within 30 to 90 days, A/R neatly fits the “current” category.
Typical Current Assets Include:
- Cash
- Accounts Receivable
- Inventory
- Prepaid expenses
When you’re sizing up liquidity (i.e., how easily you can meet short-term obligations) accounts receivable is a big player.
Where Accounts Receivable Appears on the Balance Sheet
Your balance sheet has three main sections:
- Assets
- Liabilities
- Owner’s Equity
Accounts receivable shows up under Assets, usually right after cash and cash equivalents.
Example of a balance sheet snippet:
| Assets | Liabilities and Equity |
| Cash: $50,000 | Accounts Payable: $20,000 |
| Accounts Receivable: $75,000 | Long-term Debt: $60,000 |
| Inventory: $30,000 | Owner’s Equity: $75,000 |
| Total Assets: $155,000 | Total Liabilities and Equity: $155,000 |
Notice that A/R increases your asset total, which boosts your company’s book value.
Accounts Receivable vs. Other Types of Assets
Here’s a quick cheat sheet:
| Asset Type | Example | How Fast You Can Turn It Into Cash |
| Cash | Checking account balance | Instant |
| Accounts Receivable | Outstanding customer invoices | 30-90 days, on average |
| Inventory | Supplies waiting to be sold | Varies depending on sales speed |
| Equipment | Company trucks, HVAC tools | Much slower—might require sale |
Accounts receivable isn’t quite as good as cash in hand, but it’s much closer than, say, a work truck you’d have to sell.
The Catch: Not All A/R Is Created Equal
While accounts receivable is an asset, there’s an asterisk: you only get the benefit if customers actually pay.
Two things to watch out for:
- Uncollectible Accounts: Some customers might ghost you, delay payments indefinitely, or go bankrupt.
Facing a customer bankruptcy? Find out how to recover what you can.
- Aging Accounts: The longer an invoice sits unpaid, the less likely you are to collect the full amount.
That’s why many businesses set up an allowance for doubtful accounts (AFDA)—a guess at how much A/R might never convert to cash.
How to Manage Accounts Receivable Like a Pro
1. Set Clear Payment Terms
State your payment terms upfront in your quotes and contracts. Net 30 (due in 30 days) is standard, but for risky clients, consider Net 15.
2. Invoice Promptly and Accurately
Send invoices the same day work is completed and ensure their accuracy. Errors on invoices can delay payment unnecessarily—so, if you haven’t already, ditch the manual bookkeeping and shop for software.
3. Follow Up—Politely but Firmly
A reminder a few days before the due date, a second on the due date, and a firmer one if the invoice goes past due.
4. Monitor Your Aged Trial Balance
Run an aged A/R report at least monthly to spot slow-paying accounts before they become bad debts.
Sample Aged Trial Balance Layout:
| Customer | 0-30 Days | 31-60 Days | 61-90 Days | 90+ Days |
| Big Energy Co. | $5,000 | $1,200 | $0 | $0 |
| HVAC Supply Inc. | $0 | $2,500 | $1,000 | $3,000 |
5. Use Payment Incentives and Penalties
Offer small discounts for early payments (e.g., 2% off if paid within 10 days) and apply late fees for overdue invoices.
For more insights on how overdue invoices can impact your business, warning signs of potential nonpayment, and best practices for collecting payments, check out How to Handle Unpaid Invoices by Stripe.com.
Common Mistakes Businesses Make with Accounts Receivable
Mistake 1: Counting Unpaid Invoices as Guaranteed Money
A dollar not yet collected isn’t worth as much as a dollar in your bank account. Forecast conservatively.
Mistake 2: Neglecting Past-Due Customers
The longer you wait to chase overdue accounts, the colder the trail gets—and the harder the collection.
Mistake 3: Not Vetting Customers Before Offering Credit
New customers should earn the privilege of Net 30. Run basic credit checks or get trade references.
Mistake 4: Forgetting to Adjust for Bad Debt
Build a buffer for the real-world reality that some invoices will never get paid.
Quick Formulas Related to A/R
Days Sales Outstanding (DSO)
Example:
- A/R = $75,000
- Credit sales for the month = $150,000
- 30 days in the month
Lower DSO = Faster payments = Healthier cash flow.
The Answer to Your Question
So, is accounts receivable an asset? Absolutely. It represents future cash and plays a vital role on your balance sheet. But like any good tool, it’s only valuable when handled wisely. If you treat A/R as a living, breathing piece of your cash flow—monitoring it closely and acting swiftly—you’ll keep your business solvent, scalable, and sane.
Don’t let unpaid invoices sneak up and strangle your cash flow. Track it. Manage it. Respect it.
Strengthen Your A/R Game Today
Ready to master your accounts receivable once and for all? Start by reviewing your current A/R balance, flag overdue invoices, and refresh your customer communication game. Don’t treat your receivables like a dusty IOU pile—treat them like the lifeline they are. Stronger A/R management means stronger cash flow, better forecasting, and fewer financial headaches down the road.
Boss up your A/R management with Aptora’s Total Office Manager. With its robust suite of reports, you’ll gain the detailed financial insights you need to stay on top of your accounts receivable with ease!
FAQs
1. Is accounts receivable a current asset or a long-term asset?
Accounts receivable is a current asset because it’s expected to convert to cash within a year. It reflects sales made on credit that you anticipate collecting soon—typically within 30 to 90 days.
2. What happens if an account receivable is not collected?
If you determine it’s uncollectible, you write it off as bad debt expense and remove it from your assets. This protects your financial statements from overstating revenue and gives a clearer picture of actual income.
3. Can accounts receivable be sold?
Yes. You can sell A/R to a factoring company for immediate cash—although they take a cut. This is a common financing option for businesses that need to improve cash flow quickly but may impact profit margins.
4. How often should I review my accounts receivable?
At least monthly. Weekly reviews are even better if cash flow is tight or if you’re scaling fast. Frequent reviews help spot delinquent accounts early and give you time to follow up before balances become uncollectible.
5. Does offering payment terms increase my accounts receivable risk?
It can. Offering terms like Net 30 gives customers time to pay but also increases the chance of delays or non-payment. Vet customers carefully and enforce your policies. Consider using late fees or early payment discounts to manage that risk.
