Since there are no specific legal requirements limiting the time period accounts receivable can be outstanding, in essence, they are allowed to remain for as long as the company owed money is willing to wait for payment. Accounts receivable are the sums of money owed to an individual or a company for services or goods provided. Most receivables operate in the form of lines of credit and are due in a short period of time. These lines of credit allow customers to avoid the inconvenience of physically paying for a purchase each time a transaction is made. In more simple terms, a receivable is an agreement made by a customer to pay a company in a timely fashion for a good or service rendered.

The most common lengths of time accounts receivable generally remain outstanding are net 30 days, net 45 days, net 60 days and 30 days from the end of the month. As an example, if the accounts receivable has an outstanding payment period of net 30 days, it means the customer is expected to pay the balance owed by the end of 30 days from the date of the purchase. To encourage prompt payment, businesses sometimes extend a discount on the balance to customers who pay before the end of the determined payment period. The creditor usually has the option to charge late fees to the customer if the line of credit is not paid in the expected timeframe.
Depending on the type of industry or business, a certain percentage of debts or customers are commonly estimated to default. A business records an allowance in its records for these questionable accounts. Accounts receivable insurance is carried by many businesses to cover losses sustained from receivables that are paid off slowly or defaulted on entirely.

  1. How should investors interpret accounts receivable information on a company's balance ...

    Analyze accounts receivable information on a company's balance sheet carefully. Receivables offer confidence of future cash ... Read Answer >>
  2. What are the differences between installment sales and credit sales?

    Determine the differences between credit sales and installment sales, which businesses often offer their customers for deferred ... Read Answer >>
  3. Determining a Firm's Percentage of Credit Sales

    Find out where to look for information about determining a company's percentage of credit sales. Read Answer >>
  4. What is the difference between the current account and the capital account?

    Learn how to differentiate between the capital account and the current account, the two components of the balance of payments ... Read Answer >>
Related Articles
  1. Investing

    The Importance Of Analyzing Accounts Receivable

    While investors often focus on revenues, net income, and earnings per share, they should not overlook the importance of analyzing accounts receivable.
  2. Investing

    Accounts Receivable

    Accounts Receivable (A/R) is an accounting term used to refer to the money that is owed to a company by its customers.
  3. Small Business

    Top 10 Ways to Improve Your Business's Cash Flow

    Improving cash flow from receivables provides more capital for day-to-day operations and innovation. Here are 10 ways to do it.
  4. Taxes

    Form 9465: Don't Pay Your Back Taxes Without It

    This form can lighten your tax load if you owe Uncle Sam. And you can often apply online.
  5. Investing

    Measuring Company Efficiency To Maximize Profits

    Efficiency ratios can provide indications of profitability, shows how efficiently a company is being managed, utilizes its assets and handles liabilities.
  6. Tech

    Is the Payment Processing Industry Evolving? (PYPL, TGT)

    Learn about the many changes in commerce and payment systems that are happening in the rapidly evolving payment processing industry.
  7. Small Business

    In Small Business, Success Is Spelled With 5 "C"s

    Incorporating these steps will help your business thrive in a competitive market.
  8. Personal Finance

    Credit Repair: How to Improve Your Credit Score

    There is no quick fix for a bad credit score, but there are several strategies you can take to improve your credit rating and save money over the long term.
  1. Accounts Receivable - AR

    Accounts receivable is the balance of money due to a firm for ...
  2. Net Receivables

    Net receivables is the total money owed to a company by its customers ...
  3. Past Due

    Past due is a loan payment that has not been made as of its due ...
  4. Trade Credit

    A trade credit is a B2B agreement in which a customer can purchase ...
  5. Transaction

    A transaction is an agreement between a buyer and a seller, but ...
  6. Account Settlement

    An account settlement generally refers to the payment of an outstanding ...
Trading Center