According to numerous sources, the concept of accounts receivable is characterized by the amount of debts that some business entities are required to pay to other business entities based on the results of their economic interactions. As a rule, these debts arise as a result of sales on credit.
In accounting, accounts receivable are understood as property rights, as an object of regulation of civil legislation. The content of these rights is set forth in Art. 128 of the Civil Code of the Russian Federation, and includes: things, money, work and services, securities, information, intellectual property, other property and intangible goods. As a result of this interpretation, receivables act as part of the property of the enterprise, and the right to receive it, respectively, is a property right.
It should be noted that in economic practice, no business entity can do without it, because the creation of receivables is due to objective circumstances, namely:
- for the debtor - this is access to additional free working capital;
- for the lender - this is an opportunity to actively expand the market.
The formation of receivables is facilitated by a situation in which the moment of change in ownership does not coincide in time with the moment of payment.
One of the main factors in the success of an enterprise or company is the increase in accounts receivable compared with the amount of accounts payable. In its simplest form, accounts receivable should be accepted in three types of its manifestation:
- firstly, it acts as a way and a resource with which you can pay off accounts payable;
- secondly, it represents a part of the products that have already been sold to consumers, but have not yet received payment for the goods shipped;
- thirdly, it is part of current assets, which are formed from the own sources of the enterprise or organization.
That is why, the most important indicator characterizing the receivables is the receivables turnover ratio, designated as “RT”. In its simplest, classic form, it is defined as the quotient of dividing the enterprise turnover indicator by the average value of receivables. Account receivable turnover ratio calculated in this way demonstrates the efficiency of the enterprise or company in demanding payment for products shipped to consumers. A decrease in the coefficient indicates an increase in the number of insolvent customers, as well as other problems with the sale of manufactured products. This is a very alarming signal for the enterprise, since the lower the turnover, the higher its demand for working capital .
There are several ways in which a receivable turnover ratio can be reflected. For example, a method has been widely used that expresses turnover as the average value of the number of days that is needed to collect payments, it is called the period for collecting receivables (CP) and is calculated as follows:
CP = (RT / N) x 365,
where N is the sales volume, and 365 is the number of days in a year.
When using a different study period, the number 365, respectively, changes by the number of days of the study period.
In addition, the receivables turnover ratio allows us to determine trends in its values. So, for example, its increase at a constant turnover rate inevitably leads to an increase in the profitability of capital invested in production, and, accordingly, vice versa.