Receivables are monetary obligations owed to an organization by its customers and debtors. This asset represents a use of cash by an entity, since it is essentially loaning funds to others. By restricting the amount of receivables, a firm can minimize its working capital requirements. Conversely, by expanding the amount of receivables, it can increase sales by selling to customers that require longer payment terms.
Receivables are classified as assets on an entity's balance sheet. If they are to be received within one year, they are classified as current assets. Otherwise, they are classified as long-term assets.
Receivables are routinely evaluated for collectability. If there is a risk of nonpayment, this triggers an adjustment to an allowance for doubtful accounts, which is a reserve against nonpayment.