Accounts receivable management can be complex when you don’t have specialized accounting knowledge. For example: are accounts receivable considered assets or liabilities? In today’s post, we answer this and other common questions about AR management.
What Are Assets and Liabilities?
To determine whether accounts receivable are assets or liabilities, we have to define some basic terms first.
Let’s begin with assets and liabilities, the two fundamental categories of a balance sheet. Simply put, assets are the things a business owns while liabilities are the debts the company owes.
As a business owner, you always want your assets to exceed your liabilities. When the opposite occurs, it is a huge red flag indicating that you have to take measures to ensure the continuity of your business.
What Are Accounts Receivable?
The term accounts receivable (also known as AR or A/R) refers to the amount of money your customers owe you.
Receivables occur when your company allows customers to purchase goods or services on credit. In this case, you invoice the client and they are required to pay within an agreed-upon period of time (usually between 30 to 90 days).
The opposite of accounts receivable is accounts payable, which is the money your business owes to other companies.
Are Accounts Receivable Assets or Liabilities?
Now that you have a good grasp of all the technical terms you need to know, it’s time to tackle the question: are accounts receivable assets or liabilities?
Accounts receivable are assets. In fact, on a balance sheet, accounts receivable are listed as current assets.
The reason is that accounts receivable can be easily converted into money, so from an accounting standpoint, it’s almost like having cash on hand.
However, very often this is easier said than done. Some clients are slow to pay, which can throw a monkey wrench into your whole revenue cycle. It’s a domino effect: one or two clients fall behind on their payments and before you know it, you are having difficulties meeting your obligations to providers and employees.
An easy way to solve this problem is by using receivables factoring. Factoring your receivables means selling them to a third party called factor. The factor pays you immediately (not within 30 or 90 days!) and then collects the invoices from your customers in exchange for a small fee.
Simply put, with factoring, your receivables are an asset in the truest sense of the word!
ACS Factors: We Turn Your Invoices Into Cash
We are a Factoring company located in Upland, California, with many clients nationwide in the distribution and logistics corridor which includes Ontario, Riverside, Fontana, Jurupa Valley, and Moreno Valley.
Contact us today by email (email@example.com) telephone (909-946-5599), or through our social media accounts on Facebook, Twitter, and YouTube, and start enjoying the convenience of converting your accounts receivable into cash today!