Table of Contents

Example H2

“Why is AR going up?” is one of the most common—and often most misunderstood—questions finance teams face. There’s often an underlying accusation: that Accounts Receivable (AR) shouldn’t be increasing.

But this perspective is fundamentally flawed. An increasing AR balance can be the sign of a thriving, healthy company!

Much like fine wine, different vintages of AR have different characteristics. Lumping all outstanding debt together is unhelpful at best and downright misleading at worst. When viewed through the right lens, a healthy increase in AR is a powerful indicator of sales success and business growth.

The key is understanding which AR is increasing and why.

The case for growing AR

For many businesses, particularly those operating in B2B or offering significant payment terms, AR is the lifeblood connecting sales to cash flow. Here’s why a rising AR balance can be a positive sign:

1. Growing AR can confirm sales growth

The most direct correlation is between AR and sales. If your AR balance is significantly increasing month-over-month or quarter-over-quarter, it usually means your sales team is closing more deals and extending more credit. This is a good thing! It shows that:

  • Demand is High: Your products or services are desirable enough for customers to agree to payment terms.
  • Customer Trust is Strong: You are onboarding new customers or expanding credit limits with existing ones, demonstrating confidence in their ability to pay.

2. Growing AR can mean bigger/better customers

Extending credit can be a strong competitive advantage. If your AR is growing, it suggests you are successfully using credit terms (net 30, net 60, etc.) to:

  • Win larger contracts: Bigger deals often require longer payment cycles.
  • Increase customer loyalty: Flexible payment options often lead to repeat business.

…But not all AR is created equal

While you want your AR balance to climb with your sales, you absolutely do not want your “old” AR—accounts that are significantly past their due date—to increase.

This is where the concept of AR “cohorts” comes in.

Understanding AR Cohorts (Aging Buckets)

AR aging reports group your outstanding invoices into “buckets” based on how long they have been due. A typical aging schedule looks like this:

Cohort (Aging Bucket)StatusImplicationNot yet due - Current, it’s perfectly healthy to have AR this bucket.

‍1–30 Days Past Due - New, a common percentage of these is normal; often just slight administrative delays.

‍31–60 Days Past Due - Warning sign, requires immediate follow-up. The probability of collection starts to decrease.

‍61–90 Days Past Due - High Risk, serious collection efforts needed. Likely impacting cash flow projections.

‍90+ Days Past Due - Bad AR, significant risk of becoming a bad debt write-off. This is the AR you want to minimize.

Goal: a “healthy mix” of cohorts

The goal isn’t just to increase or decrease your total AR; it’s to maintain a healthy mix of cohorts that skews heavily toward the “Current” and “New” buckets.

  • When this goes right: Total AR goes up, driven by a large volume of new invoices in the “Current” (not yet due) and “1–30 Days Past Due” buckets. This indicates high sales volume with customers who are paying relatively on time.
  • When this goes wrong: Total AR goes up, driven by an expansion of the “High Risk” and “Bad AR” buckets. This indicates a serious problem: you are selling more, but your customers are struggling (or refusing) to pay you, effectively making your sales non-cash-generating liabilities.

How to keep your AR healthy

AR health starts with tracking your numbers, tracking down AR in the “bad” buckets, and keeping on top of collections. Using an AR service (like Invoice Butler!) can takes care of all of these for you:

  1. Tracking aging buckets: this lets you make your AR aging report a weekly priority, as well as seeing how you’re trending over time.
  2. Resolving existing collections issues: Invoice Butler can follow up with all of your customers and bring time to resolution down. The faster we act on a 31-day overdue invoice, the less likely it is to become a 90-day issue.
  3. Keeping new issues from emerging: Once we’ve gotten all of your customers on a regular payment schedule, we work to keep them there!

The takeaway: an increase in your total Accounts Receivable isn’t necessarily bad—it may mean your business is booming! But remain vigilant, because if that growth is happening in the “old” AR buckets, you’re not building a business; you’re building a collection problem.

‍