What is AR (Accounts Receivable)?
The money customers owe a company for goods or services delivered but not yet paid for.
Definition
Accounts receivable is recorded as a current asset on the balance sheet and represents outstanding customer invoices. Managing AR well means invoicing promptly and accurately, applying payments correctly, and following up on overdue balances to keep cash flowing. The health of AR is commonly measured by days sales outstanding (DSO) and by an aging report that buckets invoices by how long they have been outstanding. Slow collections tie up working capital, so AR is a focus for credit and collections teams.
How AR Works in ERP
An ERP generates customer invoices from sales orders, contracts, or project milestones, posts them to the AR subledger, and applies incoming payments through cash application, increasingly with automated matching. It maintains credit limits, runs aging reports, and triggers dunning reminders for overdue accounts. The system links AR balances to the general ledger and feeds DSO and cash-forecast metrics in real time.
ERP Vendors with Strong AR
Oracle NetSuite
The original cloud ERP — built for fast-growing companies
Sage Intacct
Best-in-class cloud financials for services and nonprofits
Certinia (FinancialForce)
ERP built on Salesforce for professional services
Microsoft Dynamics 365
Modular ERP + CRM tightly integrated with Microsoft 365
Frequently Asked Questions
How is accounts receivable shown on financial statements?
Accounts receivable appears as a current asset on the balance sheet because it is expected to convert to cash within a year. Companies often record an allowance for doubtful accounts alongside it to reflect invoices that may not be collected, so the net figure is a realistic estimate of cash to be received. Changes in AR also flow through the cash flow statement, where rising receivables reduce operating cash. An ERP keeps these figures current as invoices are raised and payments applied.
What does cash application mean in accounts receivable?
Cash application is the process of matching incoming customer payments to the specific open invoices they pay. It can be tricky when a customer pays multiple invoices in one lump sum, short-pays, or omits a remittance reference. Modern ERPs use rules and machine learning to auto-match payments and reduce unapplied cash. Accurate cash application keeps the AR aging report reliable and speeds up collections.