# What Is Accounts Receivable?

Accounts receivable (A/R) is the money customers owe your business for work you have already done and invoiced but have not been paid for yet. It is a current asset on the balance sheet. For a contractor, A/R is every open invoice: finished service calls, progress bills and retainage waiting to be released.

## Key takeaways

- A/R is revenue you have earned and billed but not collected. It is an asset, but you can't make payroll with it.
- Ending A/R = beginning A/R + new invoices − payments received − write-offs.
- The A/R aging report sorts open invoices by how late they are (current, 1–30, 31–60, 61–90, 90+ days). Collect from the oldest bucket first.
- A/R turnover and [days sales outstanding](https://www.brix.so/learn/days-sales-outstanding) tell you how fast invoices turn into cash.
- The older an invoice gets, the less likely it is to be paid, so the cheapest collection tool is sending invoices the day the job is done.

## How does accounts receivable work?

Accounts receivable starts the moment you send an invoice instead of collecting payment on the spot. The invoice increases A/R and records the revenue (under [accrual accounting](https://www.brix.so/learn/accrual-vs-cash-accounting)). When the customer pays, A/R goes down and cash goes up. Your total revenue doesn't change when the money arrives; only where it sits on the balance sheet does.

Say a plumbing company finishes a $2,400 water heater replacement for a property manager on net 30 terms. The day the invoice goes out, A/R rises by $2,400. Twenty-six days later the check clears: A/R drops by $2,400 and the bank balance rises by $2,400. If the check never comes, that $2,400 is still sitting in A/R, looking like an asset, until someone collects it or writes it off.

That is why A/R matters so much in the trades. You pay for labor, materials and fuel up front, often weeks before the customer pays. Every dollar in A/R is money you've already spent to earn. See [cash flow for contractors](https://www.brix.so/learn/cash-flow-for-contractors) for how that gap plays out month to month.

## How do you calculate accounts receivable?

**A/R roll-forward**

```
Ending A/R = Beginning A/R + Invoices issued − Payments received − Write-offs
```

Where:
- Beginning A/R = open invoice balance at the start of the period
- Invoices issued = everything billed on credit during the period (not cash or card paid on site)
- Payments received = customer payments applied to invoices
- Write-offs = invoices you've decided you will never collect

> **Worked example: an electrical contractor's month**
>
> Illustrative numbers. An electrical contractor starts March with $62,000 in open invoices.
>
> During March it bills $140,000, collects $128,000 and writes off a $1,500 invoice from a customer who went out of business.
>
> Ending A/R = $62,000 + $140,000 − $128,000 − $1,500 = **$72,500**.
>
> A/R grew $10,500 in one month. Revenue looked great, but $10,500 of it is still in customers' pockets, not the company's bank account.

### Accounts receivable turnover

**A/R turnover**

```
A/R turnover = Net credit sales ÷ Average A/R
```

Where:
- Net credit sales = invoiced sales for the period, minus credits and returns
- Average A/R = (beginning A/R + ending A/R) ÷ 2

A company with $1,200,000 in annual credit sales and $100,000 of average A/R turns its receivables 12 times a year, which works out to about 30 days to collect (365 ÷ 12 = 30.4). That second number is [days sales outstanding](https://www.brix.so/learn/days-sales-outstanding), and you can work it out for your own shop with the [DSO calculator](https://www.brix.so/tools/dso-calculator).

## How do you read an accounts receivable aging report?

An A/R aging report lists every unpaid invoice and sorts it into buckets by how many days past due it is. It is the single most useful collections report you have. In QuickBooks Online it is the A/R Aging Summary (totals by customer) and A/R Aging Detail (every open invoice), both under Reports.

**Example A/R aging summary for an HVAC company (illustrative)**

| Bucket | Balance | Share of A/R | What to do |
| --- | --- | --- | --- |
| Current (not yet due) | $48,000 | 56% | Nothing yet. Make sure every invoice was actually received. |
| 1–30 days past due | $21,000 | 25% | Friendly reminder by text and email, with a payment link. |
| 31–60 days past due | $9,500 | 11% | Phone call. Ask when, not if. Offer a payment plan. |
| 61–90 days past due | $4,000 | 5% | Formal past-due notice. Pause new work on credit. |
| Over 90 days | $2,500 | 3% | Final demand letter, then decide: lien, small claims, collections or write-off. |
| **Total** | **$85,000** | 100% |  |

_Example numbers, not an industry benchmark. Your buckets come from your own aging report._

Watch the trend, not just the total. If the 31–60 and 61–90 buckets grow two months in a row, collections are slipping even if total A/R looks flat. The step-by-step playbook is in [how to collect unpaid invoices](https://www.brix.so/learn/how-to-collect-unpaid-invoices).

## Accounts receivable by trade

**Where A/R comes from in different trades**

| Trade | Typical source of A/R | What slows payment |
| --- | --- | --- |
| HVAC | Commercial service and maintenance contracts billed net 30; residential is often paid on site | Purchase order numbers missing from the invoice; facilities managers batching approvals |
| Plumbing | Property managers, landlords and builders on account | Invoices sent days after the job; no photos or work order attached |
| Roofing | Insurance jobs and the final payment after completion | Waiting on the insurance check or supplement approval; homeowner holding the final draw |
| Electrical | Subcontract work for general contractors, billed monthly | Pay-when-paid terms, [retainage](https://www.brix.so/learn/retainage), lien waiver paperwork |
| General contractor | Progress draws from owners and lenders | Draw inspections, missing [AIA G702/G703](https://www.brix.so/learn/aia-billing) backup, unapproved change orders |
| Landscaping | Monthly maintenance contracts and commercial properties | Seasonal clients who pay late in the off-season; HOA board approvals |
| Cleaning | Recurring weekly or monthly commercial accounts | Small invoices that nobody chases; card on file not set up |

_Patterns, not measured statistics._

## Accounts receivable vs. accounts payable vs. revenue

- **Accounts receivable** is money owed *to* you by customers. It's an asset.
- **[Accounts payable](https://www.brix.so/learn/accounts-payable)** is money *you* owe to suppliers and subs. It's a liability.
- **Revenue** is what you earned in a period, whether or not it was collected. On the [accrual method](https://www.brix.so/learn/accrual-vs-cash-accounting), an invoice is revenue the day you send it. On the cash method, it isn't revenue until the payment arrives, so cash-basis books don't carry A/R as income.
- **Unbilled work** (work done but not yet invoiced) is not A/R yet. On long jobs it shows up on your [WIP report](https://www.brix.so/learn/wip-report) as underbillings.

## Can you write off unpaid invoices?

You can remove an invoice from A/R once you're sure it won't be collected, but the tax treatment depends on your accounting method. The IRS says you can deduct a business bad debt only if the amount owed was already included in your gross income. A business on the cash method never reported the unpaid invoice as income, so there is generally nothing to deduct. Ask your tax preparer before writing off large balances.

> General information, not tax or legal advice. Rules on bad-debt deductions, late fees and collections depend on your situation and state. Check with a CPA or attorney before acting on a specific balance.

## Common accounts receivable mistakes

1. **Invoicing late.** An invoice sent a week after the job starts its 30-day clock a week late. Invoice from the truck the day the job is done.
2. **Treating A/R like cash.** A big A/R balance doesn't pay suppliers. Plan cash from what you expect to collect, not what you've billed. The [cash flow runway calculator](https://www.brix.so/tools/cash-flow-runway-calculator) helps.
3. **Payments not applied to invoices.** Deposits recorded straight to income leave the invoice open, so A/R looks inflated and customers get dunned for bills they paid.
4. **No deposit on big jobs.** Collecting part of the price up front shrinks the A/R you're exposed to. Deposit rules vary by state; see [contractor deposit laws](https://www.brix.so/learn/contractor-deposit-laws).
5. **Forgetting retainage.** Retainage is real A/R with its own due date. Track it separately so it doesn't get lost when the job closes.
6. **Never writing anything off.** Ten-year-old invoices inflate your balance sheet and hide the real collection problem.

BRIX turns finished jobs into invoices the same day, sends polite reminders on unpaid ones until they're paid, and syncs invoices and payments to QuickBooks so your A/R aging report matches what customers actually owe.

- [Invoicing and payments](https://www.brix.so/features/invoicing-payments): Turns finished jobs into invoices and politely chases unpaid ones until the money is in your account.
- [QuickBooks sync](https://www.brix.so/integrations/quickbooks): Syncs customers, invoices and payments with QuickBooks so the books match the jobs.

## Frequently asked questions

### Is accounts receivable an asset or a liability?

Accounts receivable is an asset. It's money customers owe you for work already done, listed under current assets on the balance sheet because you expect to collect it within a year. The matching liability side is accounts payable, which is what you owe others.

### Is accounts receivable a debit or a credit?

A/R normally carries a debit balance. Sending an invoice debits A/R and credits income. Receiving a payment debits cash and credits A/R. QuickBooks makes these entries for you when you create invoices and receive payments against them.

### What is a good accounts receivable turnover for a contractor?

It depends on who your customers are. A residential service shop that collects on site will turn A/R very fast, while a commercial subcontractor with retainage will be much slower. Compare yourself to your own terms: if you bill net 30, average collection much beyond 30 days means customers are paying late.

### How do I reduce accounts receivable?

Invoice the day the job is finished, take card or ACH payments on site, collect deposits on large jobs, and send automatic reminders before and after the due date. Then work the aging report every week, oldest invoices first. Our guide on [getting paid faster](https://www.brix.so/learn/how-to-get-paid-faster-as-a-contractor) covers each step.

### What's the difference between accounts receivable and revenue?

Revenue is what you earned in a period. A/R is the part of that revenue that hasn't been paid yet. On the accrual method every invoice counts as revenue when issued; A/R tracks which of those invoices are still open.

### When should I write off an unpaid invoice?

When you've exhausted reasonable collection efforts and don't expect to be paid, such as a customer who has closed or disappeared. Many owners review anything over 120 days at year-end. Whether a write-off is tax-deductible depends on your accounting method, so confirm with your tax preparer.

### Does retainage count as accounts receivable?

Yes. Retainage is money you've earned and billed that the customer is holding until the job is complete. Many contractors track it in a separate retainage receivable account so it doesn't distort day-to-day collections.

## Related

- [What Is Days Sales Outstanding (DSO)?](https://www.brix.so/learn/days-sales-outstanding)
- [What Is Accounts Payable?](https://www.brix.so/learn/accounts-payable)
- [How to Collect Unpaid Invoices (A Contractor's Escalation Plan)](https://www.brix.so/learn/how-to-collect-unpaid-invoices)
- [How to Get Paid Faster as a Contractor](https://www.brix.so/learn/how-to-get-paid-faster-as-a-contractor)
- [Cash Flow for Contractors: Why Profitable Shops Run Out of Money](https://www.brix.so/learn/cash-flow-for-contractors)
- [Days Sales Outstanding (DSO) Calculator for Contractors](https://www.brix.so/tools/dso-calculator)
- [Contractor invoicing software that sends the invoice and chases the money](https://www.brix.so/features/invoicing-payments)
- [QuickBooks for contractors: the right version, real job costing and a sync that keeps the books matched to the jobs](https://www.brix.so/integrations/quickbooks)
- [Contractor Invoice Template](https://www.brix.so/templates/invoice-template)
- [Bookkeeping for contractors that keeps your books tax-ready all year](https://www.brix.so/features/bookkeeping-taxes)

## Sources

- [IRS — Topic No. 453, Bad debt deduction](https://www.irs.gov/taxtopics/tc453) (checked 2026-10-12)
- [Intuit QuickBooks — Run an accounts receivable aging report](https://quickbooks.intuit.com/learn-support/en-us/help-articles/run-accounts-receivable-aging-summary-report/00/262050) (checked 2026-10-12)

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Written by BRIX Editorial Team. Last updated 2026-10-12. General information, not tax, legal or financial advice.
Canonical: https://www.brix.so/learn/accounts-receivable