Receivable meaning

Receivable definitions

Receivables, also known as accounts receivable, are amounts owed to a business by its customers for goods or services provided on credit. This is a common practice in many industries where customers are allowed to pay at a later date, typically within a set period of time.

Types of Receivables

There are two main types of receivables: trade receivables and non-trade receivables. Trade receivables are amounts owed by customers for goods or services provided in the normal course of business. Non-trade receivables, on the other hand, include amounts owed by employees, tax authorities, or other third parties.

Importance of Receivables

Receivables are a critical component of working capital for many businesses. They represent future cash inflows that a company can use to meet its current obligations and invest in growth opportunities. Managing receivables effectively is essential for maintaining a healthy cash flow and ensuring the financial stability of a business.

Accounts Receivable Process

The accounts receivable process typically involves invoicing customers for goods or services provided, tracking payments received, following up on overdue accounts, and reconciling any discrepancies. This process requires close attention to detail and effective communication with customers to ensure timely payment.

Risks Associated with Receivables

While receivables can provide a source of cash flow for a business, they also come with risks. One of the main risks is the potential for non-payment by customers, either due to insolvency or unwillingness to pay. Businesses must carefully assess the creditworthiness of their customers and have mechanisms in place to minimize the risk of bad debts.

Factoring Receivables

Factoring is a common practice where a business sells its receivables to a third party, known as a factor, at a discount. This allows the business to receive immediate cash rather than waiting for customers to pay. While factoring can help improve cash flow, it comes with costs and may not be suitable for all businesses.

Conclusion

Receivables play a vital role in the financial health of a business, providing a source of liquidity that can be used to support ongoing operations and growth. Effectively managing receivables is crucial for maintaining a stable cash flow and minimizing the risks associated with unpaid accounts.

Receivable Examples

1. The accounts receivable department is responsible for managing outstanding invoices.
2. A company's accounts receivable balance can indicate its financial health.
3. She recorded the receivable amount in the ledger for future reference.
4. The receivable maturity date is approaching, so we need to ensure timely payment.
5. The company offers credit terms to customers to extend their receivable period.
6. The accounts receivable turnover ratio helps assess the efficiency of collections.
7. The finance team reviews the aging report to monitor overdue receivables.
8. The receivable balance on the balance sheet should match the general ledger.
9. The company implemented a new software system to streamline receivable processes.
10. The auditor confirmed the accuracy of the accounts receivable aging schedule.

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