Simple Explanation
Accounts receivable (AR) represents money you’ve billed but haven’t collected yet. In SaaS, that typically means a customer was invoiced—for a prepaid subscription, milestone event, or usage threshold—but the payment hasn’t been collected. It’s logged as a current asset on the balance sheet. And it directly affects cash availability, not just revenue booked. Most companies have an accounts receivable team that is responsible for the billing and collections activities in the order-to-cash cycle.
Example
Say your finance team invoices $12,000 for a six-month plan on April 1st. That $12K is recorded as AR immediately. If the customer pays before the due date, April 30th, the AR entry clears and moves to cash. If the customer doesn’t pay on time? The accounting team begins to track the invoice as past due and will initiate a series of customer communications called dunning. If the invoice goes unpaid for 60 days or longer, the account may be considered delinquent, and a collections agency may get involved.
Primary Use Cases
- AR oversees cash collections used to fund day-to-day operations of business
- Short-term modeling of incoming cash flows
- Tracking delinquent accounts and late payments
- Proper bookkeeping to comply with GAAP accounting
System Workflow (Condensed)
- Invoice Created — Billing system issues invoice to customer.
- AR Logged — Journal entry created in revenue subledger.
- Payment Applied — AR is cleared; customer account balance updates.
- Aging Starts — If unpaid, AR moves into buckets (e.g., 31–60 days).
- General Ledger Sync — Reconciliation ensures AR and cash balances match.
Where Things Break
- Cash comes in, but the payment cannot be matched to the invoice → Manual reconciliation required.
- AR balance grows due to inefficient collections process → Balance sheet impact
- General Ledger says the invoice is paid, AR subledger does not → Manual reconciliation required that slows down financial close process.
- No automation of the collections process, tracking in spreadsheets → Outstanding AR balance and number of late invoices will typically increase.
What Clean AR Needs
- A dedicated accounts receivable application or module within a billing or general accounting system.
- Designated team of AR professionals that ensures timely collections, proper bookkeeping, and manages exception scenarios for delinquent accounts.
- AR aging reports grouped by date range (0-30, 31-60, 61-90, 90+ days) and dollar value to prioritize collections efforts
- Automated dunning email communications to remind customers of upcoming or overdue payments
- Automated matching of open invoices to payments received via check, ACH, wire, and credit card. Ability to auto-reconcile partial payments, credits, and reversals.
Key Takeaway
Accounts receivable is the heartbeat of the business, converting customer sales orders and subscriptions into cash to fund day-to-day operations.
AR is a Blind Spot for Many SaaS CEOs
Accounts receivable is not a process most SaaS founders focus on, but it can make a significant impact on the timing and amount of funding required. Accounts receivable reports show:
- Whether customers are treating you like a bank
- How many days does it actually take to turn invoices into cash
Focus on improving cash collection cycles and days sales outstanding. The more efficient you get, the more you can use customer payments to fund your operations instead of selling equity or taking on debt.
Frequently Asked Questions
No, they are two different accounting concepts. Accounts receivable tracks activities related to invoices, payments, and cash flow. Revenue is tracks how performance obligations are fulfilled for customer contracts or sales orders.
Under 45 days is healthy for B2B SaaS. High performers reduce DSOs to less than 30 days.
It becomes bad debt. You’ll need to write it off and reflect the loss in your income statement.
Yes. Investors look for clean AR books. A bloated, aged AR balance implies poor financial controls or customer risk.
