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What is accounts receivable?

Accounts receivable refers to the money a company is owed by its customers for goods and services that have been delivered, but not yet paid for. Accounts receivable is commonly abbreviated as A/R.

An account is a record of exchange between two businesses. An account can be a single transaction, or it can represent an entire business relationship encompassing thousands of transactions. Maintaining and utilizing proper records on all currently active accounts is a major responsibility for a business.

The Buyer, or Accounts Payable (AP) owes money to the Supplier or Accounts Receivable (AR)

What is the difference between accounts receivable and accounts payable?

Accounts receivable refers to money owed to a business by its customers, while accounts payable refers to money a business owes to its suppliers. 

When business A delivers a good or service to business B, but has not yet been paid, business A views that account as “receivable” because they have the right to receive funds from business B. Accounts receivable are viewed from an accounting perspective as an asset because, even though Business A does not have the owed money now, they presumably will be paid by Business B in the future.

Business B would view the same account as “payable” because they have an obligation to pay business A. Accounts payable are viewed as liabilities, because they represent debts owed to other businesses.

Managing accounts receivable is a major responsibility that all businesses must undertake in order to remain solvent. Because it is a common practice in business to deliver goods and services before receiving payment, businesses must work diligently to manage their cash flow or else risk running out the necessary funds to keep their business functioning.

Example: Business A sells $1 million worth of widgets to Business B. Business B agrees to pay 90 days after receipt of the widgets. The widgets will cost Business A $800K to manufacture. Business A only has $800K of cash-on-hand and they spend all $800K creating and delivering the widgets. Even though Business A has $1 million coming to them in 90 days, their cash on hand is now $0, so they cannot make payroll, pay overhead or create widgets for other customers over the next 90 days. Because they have poorly managed their accounts receivable, their cash flow is inadequate for the needs of their business and they must either take out a loan or enter bankruptcy.

This example is an oversimplification. Typical businesses have dozens, hundreds, or thousands of accounts that are receivable and potentially just as many accounts that are payable. The work of managing cash coming in and cash going out is a major concern for all businesses.

What is Accounts Receivable Automation?

Accounts receivable automation refers to technology solutions that automate many of the repetitive and manual tasks that constitute A/R management. 

Automation can also give A/R professionals greater insight into their accounts, instantly generating reports, displaying statuses, providing a centralized repository for customer invoices and pointing out issues that must be addressed. 

The larger a business grows, the more complex the work of managing accounts receivable becomes. As we can see from the above example, accounts receivable management is a time-sensitive practice. As such, a business must have the capacity to manage all of its accounts receivable in a timely-fashion or else risk cash flow problems.

Traditionally, accounts receivable management capacity has been increased by growing an organization so that more professionals can be assigned to accounts receivable (A/R) tasks. This comes with overhead costs that can counterbalance the benefits of growth. Additionally, the growing complexity of a company’s accounts receivable can lead to more errors, bad experiences for customers and inefficient workflows regardless of the size of the A/R management workforce.

A/R automation can use machine learning to automate even complex tasks. The use of predictive algorithms can generate suggestions about what tasks A/R professionals should take on next in order to work most efficiently and even how they should approach issues in their work.

What are the disciplines of accounts receivable?

The disciplines of accounts receivable are: Credit – Invoicing – Payment – Cash Application – Collections

Accounts receivable management is so important to the functioning of a business that its tasks are divided amongst several disciplines that manage accounts across what is referred to as the order-to-cash cycle.

The order-to-cash cycle is the journey an account takes from ordering a good or service to a company realizing cash for that good or service. 

Credit, Order, Invoicing, Payments and Cash Application, Collections form part of the Order to Cash Cycle.


The first step of the order-to-cash cycle is credit. It is common for businesses to initially purchase goods and services on credit with payment to come later. It is the job of a credit professional to decide how much credit a customer will be granted.

In order to determine how much credit to grant a customer, a credit professional will pull credit reports on the customer from the credit bureaus, consult the customers bank and ask other businesses about their experiences with the customer (these are referred to as trade reports).

The credit professional will also examine the cash-on-hand and cash flow of their own business in order to not make the same mistake Business A did in our example and overextend their own resources.

The credit professional will also play a role (along with the sale representative) in setting the payment terms of the customer’s potential order. Payment terms include when payment is due, any discounts available for paying early as well as any penalties that will be incurred if payment is later.

The credit professional is responsible for enabling maximum sales volumes at their company while minimizing risk. It is a difficult and high-stakes discipline.


Once a good or service is delivered, A/R professionals must now invoice the customer for the amount owed. This can be done in a variety of ways, either via a paper bill sent through the mail, or increasingly, through ePresentment or electronic billing. Electronic invoices include older formats such as faxes and phone (interactive voice response) and newer, more efficient formats like emailed bills and bills presented via portals.

Quickly and accurately generating invoices and delivering them to customers is important and time-sensitive work. The faster an invoice is presented to a customer, the faster they should pay and realize cash for the business.

Payment Acceptance

Customers will try to pay their suppliers in the ways that are most convenient and beneficial to them. This may include paper checks, ACH payments, wire-transfers or virtual credit cards.

The supplier must decide which form of payments they are willing to accept and set up processes to maximize the efficiency of receiving payments through their chosen channels.

There are costs and efforts associated with receiving each type of payment and businesses must balance honoring their customers payment preferences with their own interests.

Cash Application

Once payments have been received via the various payment channels, cash must be “applied” to accounts. In practice, this means recognizing that a certain amount of cash has been received and marking an invoice as PAID.

This is more complex than it seems. Companies typically receive hundreds or thousands of payments each month. Cash Application specialists must then “match” cash received with invoices. The use of remittance advice (often referred to simply as “remittance”) assists with this. Some forms of payment, like paper checks and credit card payments come with remittance advice attached. A check may have in its “memo” section a note that states it is paying off invoice # 1358. But some forms of remittance, such as ACH do not support remittance advice coming attached with the payment. Remittance advice may be sent separately, in an email or phone call, complicating the work of applying the cash.

Further complications arrive when payments are meant to cover multiple invoices, when customers short pay for various reasons or when payment errors are made.

The faster that received cash is applied, the faster a business can reliably use it for operations and the faster a customer’s credit can be replenished, enabling them to order more goods.  


When payment is not received and applied by the agreed upon date, an account becomes delinquent and is transferred to collections.

It is the job of collectors to contact customers and try to get them to pay. There are many reasons that accounts become delinquent. A customer could just need a reminder to pay, they may be strategically paying late in order to better manage their own cash flow, they may have a dispute about what the good or service they received or they may simply be unable to pay.

A collector has the complicated job of connecting with customers, understanding their reasons for delinquency and trying to work with them in order to realize payment for the company.

To learn how accounts receivable automation from Billtrust can help your business, connect with [email protected].

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