What Are Accounts Receivable?

Money customers owe a business for goods or services already delivered. It shows up as an asset on the balance sheet.

Why it matters: Whether receivables transfer in a sale is one of the more common friction points in the sale of a business, and it catches sellers off guard because there's no industry-standard rule. On smaller deals, the seller typically collects outstanding receivables themselves and keeps that cash — the buyer starts fresh with a clean slate. On larger deals, receivables sometimes transfer to the buyer as part of working capital, with a price adjustment to compensate the seller. Because there's no firm size cutoff between the two approaches, expectations can diverge fast: a seller assuming they'll collect their own receivables can find a buyer assuming those receivables convey with the sale. Getting this settled explicitly in the letter of intent or purchase agreement — not left implicit — avoids a fight during closing.

Example: A landscaping company bills commercial clients net-30 and carries $60,000 in receivables at close. If the deal doesn't address it, the seller may expect to collect that $60,000 themselves post-close while the buyer assumes it's included in the purchase price — a gap worth resolving well before the purchase agreement is drafted.

Some businesses carry meaningful receivables (manufacturers, consulting firms, contractors on invoice terms); many small retail operations — restaurants, gas stations, salons — carry almost none, since customers pay at the time of service. Receivables are a core piece of Working Capital — see that entry for how it factors into deal terms.

Related terms: Working Capital, Cash Flow Statement, Balance Sheet, Accrual Method of Accounting