Two Sides of the Same Coin
Your business both sends and receives invoices. Tracking both sides is essential for understanding your financial position and managing cash flow.
Accounts Receivable (AR) — Money Owed to You
Accounts receivable is the total amount of money your clients owe you for work you’ve done or products you’ve delivered but haven’t been paid for yet.
Example: You send three invoices this month — $2,000, $3,000, and $1,500. None have been paid yet. Your accounts receivable is $6,500.
Why It Matters
- AR is an asset on your balance sheet, but it’s not cash in your pocket
- High AR can mean great sales — or it can mean you have a collection problem
- The longer an invoice stays unpaid, the less likely you are to collect it
Accounts Payable (AP) — Money You Owe
Accounts payable is the total amount you owe to suppliers, vendors, and service providers for things you’ve received but haven’t paid for yet.
Example: You received an office supply delivery ($300), your monthly software bill ($150), and a subcontractor invoice ($2,000). You haven’t paid any of them. Your accounts payable is $2,450.
Why It Matters
- AP is a liability on your balance sheet
- Paying too early can strain cash flow; paying too late can damage relationships
- Keeping AP organised prevents missed payments and late fees
The Aging Report
An aging report breaks down your AR or AP by how long each invoice has been outstanding. It typically groups invoices into time brackets:
| Period | Description |
|---|---|
| Current | Not yet due |
| 1-30 days | Slightly overdue |
| 31-60 days | Overdue — follow up needed |
| 61-90 days | Significantly overdue — escalate |
| 90+ days | At risk — may need formal collection |
Why Aging Reports Are Important
- They highlight problems early. A growing pile of 60+ day invoices signals a collection issue before it becomes a cash crisis.
- They help you prioritise. Focus your follow-up efforts on the oldest and largest unpaid invoices first.
- They inform decisions. If a client consistently pays late, you might require upfront payment or tighten their terms.
Keeping AR and AP Healthy
For Accounts Receivable
- Invoice immediately after delivering your work
- Set clear payment terms and communicate them upfront
- Follow up consistently on overdue invoices
- Offer easy payment options — online payment links reduce friction
- Review your aging report weekly — don’t let anything slip past 60 days without action
For Accounts Payable
- Record bills when you receive them — not when you remember
- Pay on time to maintain good supplier relationships and avoid late fees
- Take advantage of early payment discounts when offered
- Don’t pay too early unless there’s a discount — keep cash in your account as long as reasonably possible
- Review AP regularly to catch duplicate bills or errors
The Balance Between AR and AP
In an ideal world, your clients pay you before you need to pay your suppliers. The timing difference between collecting AR and paying AP is a key factor in your cash flow health.
Fastbooks tracks both AR and AP in real time and provides aging reports so you always know who owes you, who you owe, and how long each amount has been outstanding.