Accounts receivable refers to money owed to a business by its customers (debtors). Any customer with an outstanding account balance is considered a debtor.
These are customers from whom you expect to receive money, and are treated as a current asset.
Knowing who owes you money and being able to collect on that money in time is an important part of running a business.
Invoices and credits
An invoice is a commercial document issued to a customer detailing a transaction that occurs related to a sale. It lists the value of the transaction along with any tax applicable to the sale.
Customers must receive invoices to know how much money is owed.
Credits are the inverse of invoices, detailing a transaction related to a refund. Credit notes are typically issued to customers when the credit is being left on account - i.e. will be used against future invoices to reduce the money owed.
Credit terms, limits and account balances
Customers who pay on credit will have credit terms indicating when they need to repay invoices. They will also have credit limits, which display how much credit they can use before having to pay some of it back.
Broadly, the customer's account balance is the sum of all unpaid invoices, less the sum of open credits and on account payments.
It is an indicator of how much money the customer owes you. Monitoring the account balance compared to the customer's credit limit is an important part of debt management.
Accounts receivable/aged debtors report
The accounts receivable (or aged debtors) report can be found under Customers > Accounts receivable (or Customers > Aged debtors). It is a list of all customers with outstanding balances, with the balance broken down by age.
The report is intended to highlight which customers owe money, how much, and how long they've owed you for. Customers with older balances may need to be chased.