Accounts Receivables

From Financial Literacy Wiki

Accounts receivable is one of a series of accounting transactions dealing with the billing of customers who owe money to a person, company or organization for goods and services that have been provided to the customer. In most business entities this is typically done by generating an invoice and mailing or electronically delivering it to the customer which is to be paid within an established timeframe called credit or payment terms.

An example of a common payment term is Net30, meaning payment is due in the amount of the invoice 30 days from the date of invoice. Other common payment terms include Net45 or Net60 but could in reality be for any time period agreed upon between the vendor and client.

While booking a receivable is accomplished by a simple accounting transaction the process of maintaining and collecting payments on the accounts receivable subsidiary account balances is and can be a full time preposition. Depending on the industry in practice, accounts receivable payments can be received up to 10 - 15 days after the due date has been reached. These types of payment practices are sometimes developed by industry standards, corprate policy, or because of the financial condition of the client.

On a company's balance sheet, accounts receivable is the amount that customers owe a business. Sometimes called trade receivables, they are classified as current assets.

Since not all customer debts will be collected, businesses typically record an allowance for bad debts which is subtracted from total accounts receivable. When accounts receivable are not paid, some companies turn them over to third party collection agencies or collection attorneys who will attempt to recover the debt via negotiating payment plans, settlement offers or legal action.