Accounts receivable

For more information on account receivable, visit Britannica.com.

Money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used, but not yet paid for. Receivables usually come in the form of operating lines of credit and are usually due within a relatively short time period, ranging from a few days to a year.

On a public company's balance sheet, accounts receivable is often recorded as an asset because this represents a legal obligation for the customer to remit cash for its short-term debts

Investopedia Says:
If a company has receivables, this means it has made a sale but has yet to collect the money from the purchaser. Most companies operate by allowing some portion of their sales to be on credit. These type of sales are usually made to frequent or special customers who are invoiced periodically, and allows them to avoid the hassle of physically making payments as each transaction occurs. In other words, this is when a customer gives a company an IOU for goods or services already received or rendered.

Accounts receivable are not limited to businesses - individuals have them as well. People get receivables from their employers in the form of a monthly or bi-weekly paycheck. They are legally owed this money for services (work) already provided.

When a company owes debts to its suppliers or other parties, these are known as accounts payable.

Related Links:
Learn about the components of the statement of financial position and how they relate to each other. Reading The Balance Sheet
Learn how to correctly analyze a company's liquidity and beat the average investor. The Working Capital Position
Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports. What Is A Cash Flow Statement?
Find out how a simple calculation can help you uncover the most efficient companies. Understanding The Cash Conversion Cycle
We look at a retailer's inventory turnaround times, its receivables as well as its collection period. Measuring Company Efficiency
Pressure to be the best can sometimes push corporations to cheat. Learn how they do it and how to spot it. How Some Companies Abuse Cash Flow

In general: unpaid balance on a credit sale. Unpaid accounts receivable are a bad debt expense.

Advertising: amount due the agency on client billings.

Magazines: amount due the publisher on unpaid credit order subscriptions.

List of money owed on current accounts to a Creditor, which is kept in the normal course of the creditor's business and represents unsettled claims and transactions. Accounts receivable normally arise from the sale of a company's products or services to its customers. See also Accounts Payable.

Accounts receivable describes the amount of cash, goods, or services owed to a business by a client or customer. The manner in which the collection of outstanding bills are handled, especially in a small business, can be a pivotal factor in determining a company's profitability. Getting the sale is the first step of the cash flow process, but all the sales in the world are of little use if monetary compensation is not forthcoming. Moreover, when a business has trouble collecting what it is owed, it also often has trouble paying off the bills (accounts payable) it owes to others.

MAKING COLLECTIONS. Just as there's an art of the sale, there is an art of the collection. In an ideal world, a company's accounts receivable collections would coincide with the firm's accounts payable schedule. But there are many outside factors working against timely payments, some of which are beyond the control of even the most efficient of collection systems. Seasonal demands, vendor shortages, stock market fluctuations, and other economic indicators can all contribute to a client's inability to pay bills in a timely fashion. Recognizing those factors, and learning to make business plans with them in mind, can make a big difference in establishing a solid accounts receivable system for your business.

By looking at receipts from past billing cycles, it is often possible to detect recurring cash flow problems with some clients, and to plan accordingly. Small business owners need to examine clients on a case-by-case basis, of course. In some instances, the debtor company may simply have an inattentive sales force or accounts payable department that needs repeated prodding to make its payment obligations. But in other cases, the debtor company may simply need a little more time to make good on its financial obligations. In many instances, it is in the best interests of the creditor company to cut such establishments a little slack. After all, a business that is owed money by a company that files for bankruptcy protection is likely to see very little of it, whereas a well-managed business that is given the chance to grow and prosper can develop into a valued long-term client.

METHODS OF COLLECTING. A good way to improve cash flow is to make the entire company aware of the importance of accounts receivable, and to make collections a top priority. Invoice statements for each outstanding account should be reviewed on a regular basis, and a weekly schedule of collection goals should be established. Other tips in the realm of accounts receivable collection include:

• Do not delay in making follow-up calls, especially with clients who have a history of paying late
• Curb late payment excuses by including a prepaid payment envelope with each invoice
• Get credit references for new clients, and check them out thoroughly before agreeing to do business with them
• Know when to let go of a bad account; if a debt has been on the books for so long that the cost of pursuing payment it is proving exorbitant, it may be time to consider giving up and moving on (the wisdom of this depends a lot on the amount owed, of course).
• Collection agencies should only be used as a last resort.

Accounts Receivable Financing

Accounts receivable financing provides cash funding on the strength of a company's outstanding invoices. Instead of buying accounts, lenders use invoices as collateral for the loan. Besides benefiting a business in debt, accounts receivable financiers can assume greater risks than traditional lenders, and will also lend to new and vibrant businesses that demonstrate real potential. An accounts receivable lender will also handle other aspects of the account, including collections and deposits, freeing the company to focus on other areas of productivity. However, risks are involved, and agreements are typically lengthy and steeped in legal lingo. Before considering this type of financing, sound financial and legal advice should be secured to make sure that it is appropriate for your company.

Further Reading:

Bragg, Steven M. Accounting Best Practices. John Wiley, 1999. "Collecting Yourself." Inc. March 2000.

Cornish, Clive G. Basic Accounting for the Small Business: Simple, Foolproof Techniques for Keeping Your Books Straight and Staying Out of Trouble. Self-Counsel Press, 1993.

Duncan, Ian D. "Making the Accounting System All That It Can Be." CMA Magazine. June 1993, p. 30.

Flecker, Cody. Collect Your Money: A Guide to Collecting Outstanding Accounts Receivable. Cobra, 1998.

Schechter, Karen S. "Compare Costs, Benefits of Billing Service Vs. In-house." American Medical News. July 24, 2000.

Schmidt, David. "Agents of Change." Business Credit. October 2000.

This entry contains information applicable to United States law only.

A debt owed by a business that arises in the normal course of dealings and is not supported by a negotiable instrument.

The charge accounts of a department store are accounts receivable, but income from investments usually is not. Accounts receivable generally arise from sales or service transactions. They are not necessarily due or past due. Insurance may be purchased to protect against the risk of being unable to collect on accounts receivable if records are damaged or lost.

This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)

Dansk (Danish)
n. pl. - udestående fordringer, tilgodehavender, debitorer

Français (French)
n. pl. - comptes clients

Ελληνική (Greek)
n. pl. - (οικον.) εισπρακτέα (διάφορα), εισπρακτέοι λογαριασμοί

Español (Spanish)
n. pl. - cuentas por cobrar, activo exigible, deudores varios

Svenska (Swedish)
n. pl. - växelfordringar

中文（简体）(Chinese (Simplified))
应收票据, 应收款项, 应收项目

中文（繁體）(Chinese (Traditional))
n. pl. - 應收票據, 應收款項, 應收項目

한국어 (Korean)
n. pl. - 수취 계정

עברית (Hebrew)
n. pl. - ‮נכסים בצורת סכומים לתשלום‬

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accounts receivable