How accounts receivable works: Managing cash flow and cross-border client payments
-
Key takeaways
Accounts receivable is money owed to your business by clients or customers for goods and services already delivered.
AR is recorded as a current asset on your balance sheet, representing future cash you have a legal right to collect.
Managing accounts receivable well protects your cash flow and reduces the risk of late or missed payments.
When your clients are overseas, AR involves currency conversion and transfer timing that can affect how much you actually receive.
Keeping clear AR records, including agreed currency and payment method, reduces disputes and speeds up collection.
Accounts receivable is money owed to your business by clients or customers for goods and services you’ve already delivered. Here’s what it means for the money you’re owed, especially when the people paying you are in another country.
When you complete a project and send an invoice, that invoice doesn’t immediately become cash. Until the client pays, it sits in accounts receivable, a record of money you’re legally owed and expect to collect. When clients are based abroad, converting that AR to cash involves more than waiting for a bank transfer, since exchange rates, transfer fees, and processing timelines all affect the amount that eventually lands in your account.
What are accounts receivable?
Accounts receivable (AR) is the total amount a business is owed by its clients or customers for goods or services delivered but not yet paid for. These amounts are recorded as a current asset on the balance sheet and are typically expected to be collected within 30, 60, or 90 days. Each unpaid invoice is an accounts receivable, and the sum of all outstanding invoices is your total AR balance. It’s distinct from accounts payable, which tracks money your business owes to others.
Why accounts receivable matters for your business finances
Accounts receivable is more than an accounting entry. It’s the gap between work completed and cash received, and how quickly that gap closes determines whether a business has the funds it needs to keep operating.
What counts as AR
AR covers any amount owed following a credit sale, meaning a sale where goods or services were delivered before payment. Common examples include invoices for completed projects, product orders shipped on agreed terms, recurring service fees not yet collected, and retainer fees for work already performed. Trade receivables, a term often used interchangeably with AR, refers specifically to receivables from normal business operations.
How AR sits on your balance sheet
Issuing an invoice debits accounts receivable, increasing assets, and credits revenue. When the client pays, cash is debited and AR is credited, reducing it. This double-entry approach, covered in Remitly’s guide to bookkeeping basics(opens in new window), keeps records reflecting what’s owed and what’s been paid. AR sits under current assets since it’s expected to be collected within a year.
How AR affects cash flow
Unpaid invoices don’t pay expenses, and even a business with strong sales can hit cash flow problems if clients consistently pay late. Tracking how long invoices typically take to be paid, often measured as Days Sales Outstanding (DSO), gives a practical view of how well AR is converting to cash. Following up on unpaid invoices and setting clear payment terms upfront are among the more effective tools for keeping that timeline short. Remitly’s guide to cash flow management(opens in new window) covers managing inflows and outflows together.
Accounts receivable vs accounts payable
AR and AP are mirror images of each other. AR is money owed to your business, a current asset; AP is money your business owes others, a current liability. AR carries a debit balance, since assets increase with debits, while AP carries a credit balance.
Accounts Receivable (AR) | Accounts Payable (AP) | |
|---|---|---|
Definition | Money owed to your business by clients | Money your business owes to vendors |
Balance sheet | Current asset | Current liability |
Accounting | Debit when invoiced; credit when paid | Credit when invoiced; debit when paid |
Goal | Collect promptly to maintain cash flow | Pay within agreed terms to protect cash flow |
How accounts receivable works for international business payments
For freelancers and small businesses with clients in other countries, accounts receivable involves a layer that domestic-only businesses don’t face. The amount on an invoice and the amount that arrives in the account are rarely the same, and the gap is shaped by exchange rates, transfer fees, and processing timelines.
If a client pays in their local currency, the amount received depends on the exchange rate applied at the time of transfer. If they pay in your currency, the conversion happens on their end instead, which can affect how much they’re willing to pay or how quickly they act. The rate at payment time is often different from the rate when the invoice was issued, and on larger invoices or regular billing cycles, that difference adds up. Remitly’s guide to getting paid by international clients(opens in new window) covers the practical trade-offs.
Stating the billing currency clearly on every invoice, and agreeing on it in writing before work begins, protects against disputes if rates move between issue and payment. Specifying who covers transfer fees avoids a mismatch between what’s invoiced and what’s actually received. International transfers also take longer than domestic ones, so building that lag into payment terms, asking for payment a few days ahead of when funds are needed, reduces the chance of a timing shortfall. Remitly’s guide to creating a small business budget(opens in new window) covers accounting for delayed inflows more broadly.
Record-keeping tip: what to capture for international AR
International AR records need to capture more than the invoice amount and due date:
What to record | Why it matters |
|---|---|
Agreed billing currency | Prevents disputes if exchange rates shift between invoice and payment |
Who covers transfer fees | Ensures the amount received matches expectations |
Expected transfer method | Helps anticipate processing time and plan cash flow |
Date payment was received | Confirms when AR converted to cash for your records |
Amount actually received | Shows whether the transfer matched the invoice after fees and conversion |
Invoicing software can automate invoice creation and track outstanding AR, but capturing these cross-border details is what prevents gaps at reconciliation time.
Common questions about accounts receivable
-
Is accounts receivable a debit or a credit?
Accounts receivable is a debit. As an asset account, AR increases with debit entries and decreases with credit entries: an invoice debits AR and credits revenue, and a payment credits AR and debits cash. This follows standard double-entry bookkeeping, since assets increase with debits.
-
What’s the difference between accounts receivable and trade receivables?
The two terms are closely related and often used interchangeably. Trade receivables refers specifically to AR from core business activities, selling goods or delivering services. Accounts receivable is broader and can also include non-trade amounts, like tax refunds owed or employee advances. For most small businesses, practically all AR is trade receivables.
-
How do I collect accounts receivable from international clients?
Set clear payment terms before work begins: billing currency, due date, who covers transfer fees, and preferred payment method. Issue invoices promptly, since the sooner the invoice goes out, the sooner the payment clock starts. If payment doesn’t arrive by the due date, follow up early and professionally(opens in new window). For international clients, confirming payment was initiated on their end helps distinguish a late payer from a transfer that’s simply still in transit.
-
What happens if a client doesn’t pay an accounts receivable invoice?
The invoice remains in AR until it’s collected, written off, or handed to a collections process. Invoices unlikely to be recovered are recorded as bad debt, debited to a bad debt expense account and removed from AR. Whether that write-off is also tax-deductible depends on accounting method: the IRS generally only allows a bad debt deduction for accrual-basis businesses(opens in new window), since cash-basis businesses never recorded the unpaid invoice as income to begin with.
For international clients, recovery options are more limited, since cross-border legal action is slower and pricier, and small claims courts typically don’t apply. This is why strong contracts and a deposit upfront, where the project size warrants it, matter more when working across borders.
In Summary
Accounts receivable is how a business tracks what it’s owed, and managing it well is a genuinely direct way to keep cash flow healthy. For small businesses and freelancers with international clients, that means a few extra decisions domestic billing doesn’t require: which currency to invoice in, how to handle transfer fees, and how to plan around the lag between a client paying and funds arriving.
The fundamentals still apply regardless of where clients are based: issue invoices promptly, set clear payment terms, track what’s outstanding, and follow up early.
This publication is provided for general information purposes only and is not intended to cover all aspects of the topics discussed herein. This publication is not a substitute for seeking advice from an applicable specialist or professional. The content in this publication does not constitute legal, tax, or other professional advice from Remitly or any of its affiliates and should not be relied upon as such. While we strive to keep our posts up to date and accurate, we cannot represent, warrant, or otherwise guarantee that the content is accurate, complete, or up to date.