A receivable is an amount of money due to a party (the creditor) by another party (the debtor). Both parties can be a company or a person. When both parties are companies, it is called a B2B receivable (Business To Business). When the debtor is a person, it is called a B2C receivable (Business To Consumer).
When the creditor is a company, the receivable appears in its accounts. How does it work?
- Something is sold by company “A”. A makes an invoice which is booked in a sales account. (The sum of sales over a year is called the turnover.)
- At same time, it is also booked in the client account as a receivable. (This is why bookkeeping is actually “double entry bookkeeping”).
- As soon as the buyer pays, the amount paid goes into the bank account of A and booked as such.
- Because of double entry bookkeeping, it is also simultaneously booked on the client account.
Hence, the client account (involved in step 2 and 4) show at any time how much should be paid by the client. The total of the client account at the end of the year goes into the balance sheet of company A as an asset and shows how much A should receive from its clients.
However, not all clients pay. That is why a receivable is not considered as certain as hard cash. That is also why you would need a debt collector (which should actually be called a “receivable collector” istead of “debt collector“).
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