What are receivables?

Receivables are unpaid customer debt for products or services delivered. It is a current asset that affects
a business’s liquidity and working capital management. Receivables are shown as current assets on the
balance sheet, and the general ledger shows a debit balance.

What is the significance of receivables?

Receivable entries are beneficial to businesses and their clients because they allow businesses to maintain a
steady supply of products. The relationship between the business owner and the account holder can be
documented using various receivable entries. In bookkeeping, the different types of receivables are recorded in
the financial statements.

When a business has a claim against a customer for a short-term extension of credit, they create a receivable
entry in its accounting system and send an invoice to the client to request payment.

Receivables can be used as collaterals to secure loans that can enable businesses to meet short-term
obligations. They are considered liquid assets and are a key part of the business’s working capital. It is critical
for any enterprise to handle receivables effectively as they offer additional capital to fund operations and allow
the enterprise to reduce its net debt.
What are the different types of receivables?
There are various types of receivable entries that can be used to note the relationship between the business
owner and the account holder. Majorly, receivables can be divided into three types: trade
receivable/accounts receivable (A/R), notes receivable, and other receivables.

What is trade/accounts receivable (A/R)?

Accounts receivable are the outstanding money owed to a business by its clients or customers for goods or
services that have been provided but not yet paid for. It represents the amount of money that a company is
entitled to receive and is considered an asset on the balance sheet.

The longer your A/R remains unpaid, the more difficult it will be to arrange funds for manufacturing goods for
further sales. Uncollected payments reduce working capital and delay business cycles. Collecting all unpaid
dues should be a top priority to have a better cash flow. Failure to do so will negatively affect the cash flow
available for other business needs.

Often, finance leaders tend to overlook the cash that is tied up under the accounts receivable (A/R) entry on the
balance sheet while coming up with financial strategies to optimize their business’ working capital.

CREDIT : https://www.highradius.com/resources/Blog/types-of-receivables-in-accounting/