Receivables or total receivables refers to the total amount of money that a company is owed by its customers for goods or services that have been sold but not yet paid for. It is reported on a company's balance sheet as a current asset.
Receivables can include amounts owed by customers for invoices that have been issued but not yet paid, as well as other forms of debt owed by customers, such as credit card balances or installment payments.
It's important for companies to manage their receivables effectively to ensure that they have sufficient cash flow to meet their own financial obligations, such as paying bills and salaries. This may involve setting payment terms for customers, following up on overdue payments, and taking steps to minimize the risk of non-payment, such as conducting credit checks or requiring collateral.
Total receivables can also be used as a metric to assess a company's financial health and its ability to collect payments from customers in a timely manner.
Manufacturing company has sold $500,000 worth of products to various customers during the quarter, and has issued invoices for these sales. Of this amount, $100,000 has been paid by customers, while $400,000 remains outstanding.
To calculate the company's total receivables, we simply add up the amount of outstanding invoices:
Total receivables = $400,000
This means that the company is owed $400,000 by its customers for goods sold but not yet paid for.
While having high receivables can be a good sign for a growing company, it's important to manage them effectively and minimize the risk of non-payment. This may involve implementing effective credit policies, conducting regular credit checks on customers, and following up promptly on overdue payments. A high level of receivables may also indicate that a company is extending too much credit to its customers, or that it may need to improve its cash flow management practices to ensure that it has sufficient liquidity to meet its own financial obligations.