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 your firm: 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.