Accounts receivable is a current asset on a company's balance sheet that represents amounts that are owed to the company by its customers or clients. Accounts receivable is generated when a company provides goods or services to a customer on credit, rather than receiving payment immediately at the time of sale. The customer is then invoiced for the amount owed, and the company records the invoice as an accounts receivable.

‍

Accounts receivable is an important component of a company's working capital, as it represents the amount of money that the company expects to receive from its customers in the near future. However, accounts receivable can also represent a risk, as there is a chance that customers may not pay their invoices, which can result in bad debts and lower profitability.

‍

To manage accounts receivable, companies typically have a credit policy that sets guidelines for the terms of credit extended to customers, as well as procedures for managing and collecting overdue accounts. Companies may also use various financial tools, such as credit insurance or factoring, to reduce the risk associated with accounts receivable.

‍

Accounts receivable is a critical component of a company's financial position, and effective management of accounts receivable is essential for maintaining cash flow and financial stability. By carefully monitoring their accounts receivable and implementing appropriate credit policies and procedures, companies can ensure that they have the funds they need to operate and grow their business.

‍