Accounts receivable and accounts payable are two sides of the same coin: one is money owed to your business, the other is money your business owes. Getting them straight — and managing both well — is one of the biggest levers you have over cash flow. This guide explains each clearly, shows how they differ, and covers how to keep them under control.
What is accounts receivable (AR)?
Accounts receivable is money customers owe you for goods or services you have already delivered but not yet been paid for. When you sell on credit — "pay in 30 days" — that invoice sits in accounts receivable until the customer pays. AR is an asset on your balance sheet, because it is cash you expect to collect.
What is accounts payable (AP)?
Accounts payable is money you owe suppliers for goods or services you have received but not yet paid for. When a supplier delivers stock on terms, that bill sits in accounts payable until you settle it. AP is a liability on your balance sheet, because it is cash you are obligated to pay out.
Accounts receivable vs accounts payable at a glance
| Accounts receivable (AR) | Accounts payable (AP) | |
|---|---|---|
| Direction of money | Owed to you | Owed by you |
| Balance sheet | Asset | Liability |
| Arises from | Selling on credit | Buying on credit |
| Your goal | Collect faster | Pay on time, not early |
| Effect on cash | Cash coming in | Cash going out |
Why the difference matters for cash flow
Profit and cash are not the same thing. You can be profitable on paper and still run out of money if too much cash is trapped in unpaid invoices (AR) while your bills (AP) come due. The gap between how fast you collect from customers and how fast you pay suppliers is your working-capital cycle — and managing it is what keeps the bank balance healthy. This is a common reason a shop shows a profit but has no cash.
How to manage accounts receivable
- Invoice immediately and clearly, with due dates and payment details.
- Set credit terms and limits so no single customer can owe more than you can afford — see managing customer credit.
- Follow up before and after the due date. A friendly reminder collects more than silence.
- Offer easy payment options to remove friction.
How to manage accounts payable
- Know your terms and use the full period — paying too early gives away cash you could hold — see supplier payment terms.
- Never miss a due date; late payments damage supplier relationships and can cost you discounts.
- Track what you owe and when so nothing slips — see tracking supplier payments.
- Take early-payment discounts only when the saving beats the value of holding the cash.
Track receivables and payables automatically
Spreadsheets fall behind fast. RushFlow records every credit sale and supplier bill as it happens, so your receivables, payables and aging reports are always current — and you can see exactly who owes you, what you owe, and when, across every branch.