When you sell a good or service to your customers on credit, the value of those sales is known as accounts receivable. This means that when you send a payment invoice, you do not receive cash for it right away. Rather you receive it at a later date; or in case you have a routine credit sale with a particular customer, you receive cash at the end of the credit period.
Companies that do not keep track of their accounts receivable and do not impose any policy tend to suffer a lot when it comes to maintaining a positive cash flow. Furthermore, an important part of your financial statement is built by accounts receivable: the balance sheet.
Accounts receivable ensures a steady cash flow to the business and assists in building strong credit relationships with customers that could even lead to better deals and improving the cash flow management.
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