In business accounting, what term describes money owed to a company by customers who bought on credit?

In business accounting, accounts receivable is money owed to a company by customers who bought on credit.

A sale on credit is recorded as revenue under the applicable accounting rules, but the customer pays later. Until payment arrives, the amount is recorded as a receivable, normally listed as a current asset when collection is expected within one year or the normal operating cycle.

Accounts receivable differs from accounts payable. Receivables are amounts customers owe the business; payables are amounts the business owes suppliers or other creditors. Companies monitor receivable aging to identify invoices that are overdue and estimate possible uncollectible amounts.

Credit sales can increase revenue while temporarily reducing cash availability. That is why investors often compare receivables with sales and examine collection periods. A business may also sell receivables to a factor, a practice known as factoring, to obtain cash sooner.