A:

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 simpler terms, a receivable is an agreement made by a customer to pay a company in a timely fashion for a good or service rendered.

Time Periods for Accounts Receivable to Be Outstanding

There are no specific legal requirements limiting the time period accounts receivable can be outstanding. Essentially, they are allowed to remain for as long as the company owed money is willing to wait for payment.

The most common lengths of time that 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 within 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.

RELATED FAQS
  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. What's the difference between the current account and the capital account?

    Both accounts relate to the balance of payments of a nation. One considers goods and services currently produced, the other ... 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 >>
  5. What is the weighted average of outstanding shares? How is it calculated?

    The weighted average of outstanding shares is a calculation that incorporates any changes in the amount of outstanding shares ... 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. 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.
  3. Investing

    Types Of Shares: Authorized, Outstanding, Float And Restricted Shares

    A company’s financial statements may refer to multiple types of stock, including authorized, outstanding, float and restricted shares. If a company issues more shares, its outstanding shares ...
  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. Personal Finance

    10 Bank Promotions That Pay You To Open An Account

    Find out which banks are running cash promotions this summer.
  6. Investing

    Understanding Total Return Swaps

    A total return swap is a contract in which a payer and receiver exchange the credit risk and market risk of an underlying asset.
  7. IPF - Banking

    4 Savings Accounts for Investors

    Curious about the best saving accounts and which ones suit investors?
  8. IPF - Mortgage

    How to Choose a Reverse Mortgage Payment Plan

    Lump sum? Tenure? Term? Line of credit? Here’s a look at how each payment plan works, along with the pros and cons.
RELATED TERMS
  1. Net Receivables

    Net receivables is the total money owed to a company by its customers ...
  2. Accounts Receivable Aging

    Accounts receivable aging is a report categorizing a company's ...
  3. Accounts Receivable Insurance

    Accounts receivable insurance protects a company against financial ...
  4. Average Outstanding Balance

    An average outstanding balance is the unpaid, interest-bearing ...
  5. On Account

    On account is an accounting term that denotes partial payment ...
  6. Outstanding Shares

    Outstanding shares refer to a company's stock currently held ...
Trading Center