Understanding Accounts Receivable vs Accounts Payable in Construction
Updated: May 18
Are you tired of having to deal with financial headaches while also managing construction projects? Don't worry, you're not alone! Just like laying the groundwork for a new project, managing your finances is crucial for success. Managing accounts receivable and payable is crucial for maintaining a healthy cash flow and ensuring your construction business is successful.
In this blog post, we're going to break down the basics of accounts receivable and payable in a way that is easy to understand. By the end, you will know the difference between the two and also understand how to manage them properly.
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What Is Accounts Receivable in Construction?
Accounts receivable (AR) is the money owed to your business by your clients for the services you have provided. Think of it as the dollars waiting in the wings for your grand performance!
For example, let's say you are a contractor who just finished a project for a client. If that client has not paid you yet, the amount they owe you would be considered AR. It is essentially an IOU from your client to you.
But why is AR listed as a current asset on your balance sheet? Well, that is because your firm has extended lines of credit to your clients, which are expected to be paid within agreed terms (30, 60 days, or more). And since you expect to receive this money within a year, it is listed as a current asset.
>> Accounts Receivable on Balance Sheet (Free Sample for Contractors)
So, keep your eye on your AR, my construction business buddy! By staying on top of it, you will be sure to keep your cash flow healthy and your business booming.