Accounts receivable (AR)
also known as receivables
The money clients owe an agency for work already invoiced but not yet paid. A large or ageing balance is a cash-flow warning sign.
For example, an agency has delivered and invoiced $60,000 but only collected $35,000 - leaving $25,000 in accounts receivable. If those invoices are 60 days overdue, the agency is effectively financing its clients while still paying its own staff.
Why it matters to agencies: accounts receivable is profit you have earned but cannot yet spend - and the longer it ages, the more it strains payroll and growth. Tight payment terms and prompt follow-up keep it low, which is often the difference between a profitable agency and a cash-strapped one.
Aim to keep days sales outstanding (DSO) under roughly 30-45 days; the longer invoices age, the more they hurt cash flow and risk a write-off.
- Confusing booked revenue with cash actually collected.
- Letting invoices age with no chase process.
- Taking no deposits, so you bankroll the client's project.
What is accounts receivable (AR)?
The money clients owe an agency for work already invoiced but not yet paid. A large or ageing balance is a cash-flow warning sign.
What does a high accounts receivable mean?
That a lot of invoiced work is unpaid; if it is also ageing, the agency is funding clients and risking its own cash flow.
How do agencies reduce accounts receivable?
Shorter payment terms, upfront deposits, prompt invoicing and consistent follow-up - and pausing work on seriously overdue accounts.
What is days sales outstanding?
A measure of how long, on average, invoices take to get paid; lower is better and means cash arrives faster.