Quick answer
Accounts receivable is the total your customers owe the business for goods or services already delivered and invoiced but not yet paid. It's recorded as a current asset on the balance sheet. For lenders, it shows how quickly sales turn into cash, and it can be used as security for invoice finance. A large or ageing balance often explains why a profitable business is short of cash.
Key points
- Invoiced sales that customers haven't paid yet, shown as a current asset
- On accrual GST reporting, GST is generally owed on invoices issued, paid or not
- Debtor days measure how long customers take to pay
- Can be funded through invoice finance rather than waiting for customers
Once an invoice goes out, the sale counts in your profit. The cash doesn’t arrive until the customer pays. Accounts receivable, or AR, is the running total of everything in that gap: work done, invoices sent, money still to come.
How accounts receivable is recorded
When you raise an invoice in your accounting software, two things happen. Revenue goes up on the profit and loss, and the amount is added to accounts receivable on the balance sheet. When the customer pays, AR drops and your bank balance rises by the same amount. Profit doesn’t change at that point; it was already counted.
AR is a current asset because customers are expected to pay within the year, normally on 7, 14 or 30-day terms. For more on how lenders value the ledger itself, see our entry on receivables.
The GST timing trap
This is where AR quietly drains cash. If your business reports GST on an accruals basis, GST on a sale is generally included in the BAS for the period when you issue the invoice, not when you get paid. So a business with slow-paying customers can owe the ATO GST on money it hasn’t collected.
Businesses under the ATO’s turnover threshold can choose cash-basis GST reporting instead, so the tax falls due only as customers pay. And where a customer never pays, a non-cash-basis business can generally recover that GST through a BAS adjustment after writing the debt off, or after it passes 12 months overdue.
Worked example: a cleaning contractor’s quarter
A Parramatta commercial cleaning business invoices $132k (including $12k GST) in the July to September quarter. By 30 September, customers have paid $77k and $55k is still in accounts receivable.
| Amount | |
|---|---|
| Invoiced in the quarter | $132k |
| Collected by 30 September | $77k |
| Accounts receivable at quarter end | $55k |
| GST on the quarter’s sales (accruals basis) | $12k |
The BAS for the quarter still includes the full $12k in GST, even though around 40 cents in every invoiced dollar hasn’t arrived. Add wages paid weekly, and the business can look profitable while the bank account runs dry.
Debtor days help put a number on it. With annual sales of about $480k (ex GST) and AR of $55k, debtor days are roughly $55k ÷ $480k × 365, or about 42 days, against 30-day terms.
When invoices are the bottleneck, ask how much your ledger could unlock.
Turning receivables into cash sooner
- Collect faster: clear terms, prompt invoicing and polite follow-up. Our guide on getting customers to pay faster has practical steps.
- Invoice discounting: borrow against the ledger while you keep collecting.
- Factoring: sell invoices to a funder, who then collects from your customers.
- Invoice finance: the general term for both. Our invoice finance calculator estimates the advance and fees.
Related terms
- Aged receivables: AR broken down by how long each invoice has been outstanding.
- Debtor: a customer who owes you money.
- Accounts payable: what you owe suppliers, the other side of the ledger.
Waiting on customers but the bills won’t wait?
A healthy receivables balance is evidence the business is working. It just needs bridging to cash. Send us a quick outline of what’s owed to you and what you need covered. Sending it takes roughly sixty seconds, and your credit history isn’t checked just because you asked. You won’t be passed to a long list of lenders; someone on our team reviews your ledger story and calls you. Accurate invoice totals help us match the right facility on the first call.
Frequently asked questions
Is accounts receivable the same as receivables or debtors?
Yes, in everyday use. Accounts receivable, receivables, trade debtors and debtors all describe money customers owe the business. Some accountants separate trade receivables from other amounts owed, such as loans to directors.
Do I pay GST on invoices that haven't been paid?
If you report GST on an accruals (non-cash) basis, generally yes: GST is attributed to the period you issue the invoice. Businesses below the ATO's turnover threshold can choose cash accounting, where GST is reported when payment arrives. Your accountant can confirm which method suits you.
What happens to GST if a customer never pays?
On a non-cash basis, you can generally make a decreasing GST adjustment once you write the debt off, or once it's been overdue for 12 months or more. If the customer pays later, an increasing adjustment reverses it.
Can I borrow against accounts receivable?
Yes. Invoice finance, including factoring and invoice discounting, advances a share of approved invoices, usually business-to-business invoices that are recent and undisputed. The rest, less fees, comes when the customer pays.
Does a big receivables balance help a loan application?
It helps if it's collectable. Lenders look at the age of the invoices, who owes them and whether a few customers make up most of the total. Old or disputed invoices count for little.