Debtor (from Latin debitor - debtor) - a person who has a debt to creditors in the form of money or goods. Accounts receivable is the amount expected to be received by the company from customers.
Receivables and payables concept
The most common is a customer's debt to a company for a shipped but unpaid product.
The opposite of a debtor is a creditor. Lender - a legal or natural person to whom the company has obligations. One company is both a creditor and a debtor at the same time.
Accounts receivable arise when a product has been sold and the money has not been received, for example:
- when buyers and customers purchased goods and did not pay for their cost;
- when an advance payment has been made to suppliers for goods or services;
- when employees were given accountable amounts and loans were granted.
Accounts payable include expenses recognized by the company, but not paid. These include obligations for:
- bank loans;
- taxes;
- wages;
- for the delivered goods or services.
Separately, you can highlight the obligations to buyers from whom the prepayment was received.
Accounts receivable is a means of paying off accounts payable. The basis of the company's financial stability is the excess of accounts receivable over accounts payable. This justifies the rights to future benefits and is part of the company's working capital.
At the same time, accounts receivable reduce the company's turnover, which negatively affects its activities.
Types of accounts receivable
1. According to the terms, it is subdivided:
- for current or short-term (repayment of which is expected within a year);
- for a long-term, which is provided for more than a year.
2. If possible, return:
- current debt (for which the due date has not come);
- overdue debt.
The latter is subdivided into "doubtful" debts and "bad" debts.
Bad debts are debts to the taxpayer for which the established limitation period has expired, as well as debts for which the obligation has been terminated due to the impossibility of fulfilling it.
The latter can be formed as a result of the bankruptcy of the debtor, as well as the expiration of the limitation period for the debt on the claim.
Accounts receivable management can be thought of as a means of managing the volume of sales. Granting a deferred payment provides more favorable terms of cooperation for clients. However, this always carries certain risks. When granting a deferral, the company needs to analyze in detail the buyer's solvency and reputation.
