A Beginner’s Guide to Trade Receivables

A Beginner’s Guide to Trade Receivables

A receivable is created any time money is owed to a firm for services rendered or products provided that have not yet been paid. This can be from a sale to a customer on store credit, or a subscription or installment payment that is due after goods or services have been received. Accounts receivable (AR) is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers.

As such, companies may choose to finance their trade receivables – in other words, seek early payment in exchange for a discount. Furthermore, accounts receivable are current assets, meaning that the account balance is due from the debtor in one year or less. If a company has receivables, this means that it has made a sale on credit but has yet to collect the money from the purchaser.

Trade Receivables: Process, Components & Impact on Cash Flow

Your accounts receivable balance should remain fairly consistent as new invoices are created and current balances due are paid. But that term, accounts receivable, also refers to the department within an organization that’s responsible for tracking and collecting trade receivables. Trade receivables fall under current assets on a balance sheet because they are expected to convert into cash in less than a year. For their current fiscal period, companies can amortize their non-trade receivables if they are deemed uncollectible. Non-trade receivables that arise from the sale of goods or services must be reported excluding any uncollectible portion of these accounts if their carrying value exceeds $10,000. Furthermore, if the accounts are not collectible, they must be written off.

Because they represent funds owed to the company, they are booked as an asset. Investors need to dig into the numbers shown under accounts receivable to determine if the company follows sound practices. Companies may choose to extend credit to customers to stimulate sales and foster customer loyalty.

Resources for Your Growing Business

In a computerised accounting system, all these accounting entries and the production of the invoice would take place simultaneously. While these amounts are owed to your business, they trade receivables are not part of the course of doing business. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice.