Accounts Receivable
Accounts Receivable
Accounts receivable (AR) is the total amount your customers owe you for work you have already done or goods you have already delivered, but have not yet been paid for. It is recorded as a current asset on your balance sheet because the money is expected to come in soon. In India, every unpaid invoice you raise, whether to a GST-registered business or an individual client, becomes part of your accounts receivable the moment you send it.
Quick reference
| Also known as | AR, trade receivables, sundry debtors |
| Type | Current asset on the balance sheet |
| Opposite of | Accounts payable |
| Typical collection window | 15 to 90 days in India |
| Relevant for | Freelancers, traders, agencies, consultants |
How accounts receivable works
Here is how AR moves from invoice to cash in a typical Indian business:
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You deliver the work or goods. A web designer in Pune completes a project for a client. The work is done, but no money has changed hands yet.
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You send an invoice. The designer creates and sends a GST invoice for Rs. 30,000 with Net 30 payment terms. The moment the invoice is sent, Rs. 30,000 becomes accounts receivable.
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AR sits as an asset. Until the client pays, that Rs. 30,000 appears as a current asset in the books. It is money you are owed, not money you have.
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The client pays. When the client transfers Rs. 30,000, the AR balance drops to zero and your cash balance increases by Rs. 30,000.
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If the client does not pay. After a set period, usually 90 to 180 days, unpaid AR may be written off as a bad debt, which then becomes a business expense.
Accounts receivable example for Indian businesses
Rahul runs a small digital marketing agency in Bengaluru. In January he completes three projects:
- Client A (Mumbai): Rs. 45,000 invoice, Net 30 terms
- Client B (Delhi): Rs. 20,000 invoice, Net 15 terms
- Client C (Bengaluru): Rs. 12,000 invoice, paid same day
Rahul's accounts receivable at the start of February is Rs. 65,000 (Client A + Client B combined). Client C is not AR because they paid immediately. That went straight to cash.
When Client B pays on day 14, AR drops to Rs. 45,000. When Client A pays on day 32, AR drops to zero. If Client A never pays, Rahul writes off Rs. 45,000 as bad debt.
This is exactly what a smart invoice dashboard shows you: how much you have been paid, and how much is still outstanding.
How accounts receivable works with GST in India
This is where Indian businesses need to pay extra attention. Under GST, you must declare your sales and the GST collected on them in GSTR-1 the moment you raise an invoice, even if your client has not paid you yet.
This means:
- You raise a Rs. 50,000 invoice with 18% GST, making the total Rs. 59,000
- Your AR is Rs. 59,000 including GST
- You must report and pay the Rs. 9,000 GST in your GSTR-3B that month
- You are paying tax on money you have not yet received
Important for Indian businesses: A pile of unpaid invoices combined with GST payment obligations can hurt your cash flow seriously. Sending invoices on time and following up on payments is not just good practice. It is a cash flow necessity under the Indian GST system.
Types of accounts receivable
Trade receivables
The most common type. These are amounts owed by clients for your core business work, such as services rendered or goods delivered in the regular course of work. A freelance developer's unpaid project invoices are trade receivables.
Non-trade receivables
Money owed to your business from sources outside your main work. This includes a tax refund due from the government, a security deposit you paid a vendor, or an employee advance that needs to come back.
Unbilled receivables
Work you have completed but not yet raised an invoice for. Common for consultants and agencies doing milestone-based projects. The work is done, the money is owed, but no invoice exists yet. Once you raise the invoice, it moves from unbilled receivable to regular AR.
Bad debts
Accounts receivable that are very unlikely to be paid. If a client goes silent for 180 or more days, the AR is considered uncollectable and written off as a bad debt expense in your books.
Common accounts receivable mistakes Indian businesses make
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Sending invoices late. Every day you delay sending an invoice is a day your payment gets pushed further out. Send the invoice the same day you deliver the work. Your AR clock starts ticking from the invoice date, not from the delivery date.
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Not following up on overdue invoices. Most unpaid invoices in India are not disputes. They are simply forgotten. A polite follow-up on day 31, 45, and 60 recovers most of them without damaging the relationship.
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Ignoring GST on AR. You owe GST on your invoices regardless of whether you have been paid. Businesses that treat their full AR as available cash often find themselves short when GST filing comes around.
Frequently asked questions
What is the difference between accounts receivable and accounts payable?
Accounts receivable is money others owe you and it is an asset. Accounts payable is money you owe others and it is a liability. When you send an invoice to a client, it becomes your AR. That same invoice becomes the client's accounts payable.
Is accounts receivable included in GST returns in India?
Yes. Under GST, you must report all invoices you have raised in GSTR-1, regardless of whether they have been paid. This means your AR balance directly affects how much GST you owe each month, even before you have actually collected the money.
What happens to accounts receivable if a client never pays?
If a client does not pay after repeated follow-ups, the amount is written off as a bad debt. Under the Income Tax Act in India, bad debts that were previously included as income can be claimed as a deduction in the year they are written off.
Is accounts receivable the same as revenue?
No. Revenue is income you have earned. Accounts receivable is income you have earned but not yet collected. Once your client pays, AR converts to cash. Only then is it truly in your hands.
How do I reduce my accounts receivable?
Send invoices immediately after delivery, set clear payment terms such as Net 15 or Net 30, follow up on due dates, and offer multiple payment options. Using invoicing software that sends automatic payment reminders reduces your average collection time significantly.
Related terms
Invoice · Payment Terms · Net 30 · Credit Note · GST Invoice · Bad Debt · Accounts Payable
Track your accounts receivable with JetInvoice
Every invoice you create in JetInvoice is automatically tracked as outstanding until marked paid. See exactly how much you are owed, who owes it, and how long it has been pending, all from one free dashboard.