What Is Accounts Receivable? With Aging and Collection Basics

Accounts receivable is money customers owe you for goods or services you have already delivered — invoices issued but not yet paid. It sits on the balance sheet as a current asset, because it is expected to become cash within a year.

It is also, for most companies, the largest asset they own and the one they manage worst. Receivables are revenue you have already earned, already paid tax on, and already spent money producing. Until the money arrives, you have financed your customer for free.

How receivables arise and disappear

The cycle is three entries. Issue an invoice for 1,000 € plus 21% VAT:

Account	Debit	Credit
2410 Trade receivables	1,210
5001 Service revenue		1,000
4492 VAT payable		210

Note what happens here: revenue is recognized and the VAT liability arises at issue, not at payment. You owe the state 210 € whether or not the customer ever pays — one of the reasons slow collection hurts twice.

When the customer pays:

Account	Debit	Credit
2710 Bank	1,210
2410 Trade receivables		1,210

No income in this entry — that was recorded at issue. This is only converting one asset into another, the point covered in cash basis vs accrual accounting.

If the customer never pays, a third entry eventually writes the receivable off — see bad debt, which also covers when the VAT can be recovered.

The control account and its subledger

The 2410 balance is a single number — 9,300 € in the running example used across this series. That number is useless on its own; what matters is the subledger behind it: which customer, which invoice, how old, how much still open.

That relationship is the subledger and general ledger split. The general ledger holds one receivables control balance; the receivables subledger holds the per-invoice detail. They must agree, and a discrepancy between them is a reconciliation problem to solve before the period closes.

Measuring collection performance

Three numbers tell you almost everything:

Days sales outstanding (DSO). Average days between issuing an invoice and collecting it:

DSO = (accounts receivable ÷ credit sales for the period) × days in period

Track the trend, not the level. DSO drifting from 32 to 45 days means roughly two weeks of extra revenue permanently tied up — on 180,000 € of annual sales that is about 6,400 € of cash that has quietly left the business.

Aging profile. How the balance splits between current and overdue. A 9,300 € balance that is 90% current is a different asset from one that is 40% over 90 days. The aging report is where this lives.

Collection effectiveness. Of what was collectible this period, how much was collected. This separates a genuine collection problem from a growth-driven balance increase — receivables rising because sales rose is not a problem; receivables rising while sales are flat is.

Where the risk actually is

• Concentration. 9,300 € spread over forty customers is a statistical problem. The same balance owed by one customer is an existential one.
• Aging tail. Invoices past 90 days rarely improve on their own. Collection probability falls sharply with age, which is why the aging buckets exist rather than a single "overdue" figure.
• Disputes disguised as slowness. An invoice unpaid because the customer disagrees with it is not a collection problem; it is a delivery or billing problem wearing a collection costume. These are the ones that quietly reach 180 days.
• Credit granted by accident. Payment terms are a credit decision. Most companies make it by default, once, and never revisit it as the customer's balance grows.

Practical collection basics

The uncomfortable truth is that most late payment is not a dispute or a cash crisis at the customer — it is that nobody asked. The mechanics that work are unglamorous:

1. Invoice immediately and correctly. An invoice issued a week late is paid a week late; an invoice missing a purchase-order reference may not enter the customer's approval queue at all.
2. Make the due date explicit. "Net 30" on a document dated a week ago is ambiguous; an actual due date is not.
3. Contact before the due date, not after. A short pre-due reminder catches the invoices that were never approved internally — the largest single cause of late payment.
4. Escalate on a schedule, not on mood. A defined ladder of reminders is what dunning means, and its whole value is that it happens without anyone deciding to be the bad guy.
5. Stop supplying before the balance becomes unrecoverable. The hardest one, and the reason credit limits exist.

How the ledger produces this

In Nordlet, receivables are not maintained by hand. Issuing a sales invoice posts the receivable automatically through posting rules; importing a bank statement matches incoming payments against open invoices and settles them, updating the invoice's payment status to partial or paid (see bank reconciliation for how matching works).

The views over the balance:

• POST /v1/reports/debt-aging { side: 'receivables', asOf } — per-partner aging buckets: current, 1–30, 31–60, 61–90 and over 90 days overdue, with totals.
• POST /v1/reports/partner-balances — what each partner owes right now.
• POST /v1/sales/invoices/list with a paymentStatus filter — the open items themselves.

A sale_invoice.paid webhook fires when an invoice is settled, so a platform can react to collection events instead of polling for them. There is one honest gap: automatic payment reminders are not implemented yet, so the escalation ladder described above is currently a process you run on top of the aging report and the webhook events rather than a scheduler inside the product.

FAQ

Is accounts receivable an asset or revenue?

An asset. Revenue is recorded once, in the income statement, when the sale is earned; the receivable is the balance-sheet claim created at the same moment and extinguished when the customer pays. Confusing the two leads to counting the same sale twice.

What is the difference between accounts receivable and accounts payable?

Receivables are what customers owe you (an asset); payables are what you owe suppliers (a liability). They are mirror images — your receivable is your customer's payable for the same invoice.

What is a good DSO?

The only meaningful benchmarks are your own payment terms and your own history. DSO of 45 days on 30-day terms means customers take two extra weeks on average; DSO rising over time matters far more than the absolute figure, which varies hugely by industry.

Do I still owe VAT if the customer never pays?

Under the standard accrual rules, yes — the VAT becomes due when the invoice is issued, not when it is paid. Most EU member states allow the output VAT to be reduced later once the debt qualifies as irrecoverable, but the conditions are strict and country-specific; see bad debt.

When should a receivable be written off?

When collection is genuinely no longer probable — the customer is insolvent, the claim is time-barred, or recovery would cost more than the debt. Until then, the honest treatment is a provision against the receivable rather than removing it, so the asset and the doubt are both visible.