What Are Corporate Accounts Receivable? How to Manage Them and Avoid Bad Debt
Accounts receivable is one of the important asset items, directly affecting the cash flow and capital recovery ability of a business. But what are accounts receivable, what types are there, and how should they be tracked to limit the risk of bad debt? This article will help you clearly understand everything from the concept and classification to accounting principles and more effective management methods.
Mục lục
- 1. What are accounts receivable?
- 2. What types of accounts receivable are there?
- 3. Are accounts receivable assets or capital sources?
- 4. Differentiating between short-term and long-term accounts receivable
- 5. Comparing Accounts Receivable and Accounts Payable in a Business
- 6. Accounting principles for accounts receivable
- 7. The relationship between accounts receivable and business cash flow
- 8. Conclusion
1. What are accounts receivable?
Accounts receivable are a type of business asset, including all debts to be collected, uncompleted transactions, or any monetary obligations that customers, suppliers, partners, etc., have not yet paid to the business.
Accounts receivable are formed from the business activities of a company, such as selling goods, providing services, lending, etc. Therefore, managers need to account for each entity and contract type in a detailed, accurate, and timely manner to ensure cash flow within the business.
>> See more: What is the Accounts Receivable Turnover Ratio? Meaning & Formula
2. What types of accounts receivable are there?
Currently, depending on the needs of each business, accounts receivable are classified according to various criteria. Specifically, managers can classify accounts receivable by the debtor (customers, internal, other), by the collection period (short-term, long-term), or by their commercial nature.
Among these, the most common classification is by the debtor. According to this criterion, accounts receivable will include: trade receivables (from customers), internal receivables, and other receivables.
2.1. Trade Receivables – Account 131
Trade receivables are the amounts owed to a business by its customers for goods sold or services provided that have not yet been paid for. This is the most common type of account receivable in a business.
Account 131 – Trade Receivables is used to reflect the amounts that a business is due to collect from customers arising from activities such as selling goods, providing services, liquidating or selling fixed assets, investment properties, financial investments, etc.
2.2. Internal Receivables – Account 136
Internal receivables are amounts that one unit within a business is due to collect from another unit within the same business. This type of receivable arises from the internal activities of the business and is not related to external customers or suppliers.
Account 136 – Internal Receivables is used to reflect the amounts that one unit within a business is due to collect from another unit within the same business. This account can be divided into the following sub-accounts:
- Account 1361 – Business capital in subsidiary units
- Account 1362 – Internal receivables on exchange rate differences
- Account 1363 – Internal receivables on borrowing costs eligible for capitalization
- Account 1368 – Other internal receivables.
2.3. Other Receivables – Account 138
This is a type of receivable that arises from other activities of the business, not related to its core business operations. Account 138 is used to reflect debts receivable that fall outside the scope of other receivable accounts (Account 131, 136). This account has 3 level-2 sub-accounts, including:
- Account 1381 – Assets pending resolution (reflects the value of missing assets whose cause has not been identified and are awaiting a resolution decision)
- Account 1385 – Receivables from equitization (reflects the amount receivable from equitization that the business has spent)
- Account 1388 – Other receivables (reflects receivables of the business outside the scope of those reflected in Accounts 131, 133, 136, 1381, and 1385)
3. Are accounts receivable assets or capital sources?
Capital sources are the economic resources that a business can mobilize or exploit to invest in assets. Capital sources are the basis for a business to form assets.
Assets are measurable economic benefits that have the potential to yield future benefits and are owned or controlled by the business.
Thus, accounts receivable are a type of business asset. Accounts receivable are amounts of money that a business has the right to collect from another party, arising from business activities such as selling goods, providing services, etc., or from other activities like lending or mortgages.
In essence, accounts receivable are economic benefits that can be recovered in the future. Therefore, accounts receivable are recognized as assets on the company’s balance sheet.
However, in some cases, accounts receivable can be recognized as a capital source. For example, receivables from shareholders or contributing members are recognized as a capital source for the business.
4. Differentiating between short-term and long-term accounts receivable
| Characteristics | Short-term receivables | Long-term receivables |
| Definition | A general indicator reflecting the total value of receivables with a remaining collection period of no more than 12 months or within one business cycle. | A composite indicator reflecting the total value of receivables with a collection period of more than 12 months or more than one production cycle. |
| Term | Not exceeding 12 months or one normal production/business cycle of the enterprise. | Over 12 months or one normal production/business cycle of the enterprise. |
| Classification | Short-term receivables from customers Short-term prepayments to suppliers Short-term internal receivables Receivables based on construction contract progress Short-term loans receivable Other short-term receivables Provision for short-term doubtful debts Assets pending resolution |
Long-term receivables from customers Long-term prepayments to suppliers Business capital in subsidiaries Long-term internal receivables Long-term loans receivable Other long-term receivables Provision for long-term doubtful debts |
| Accounting Principles | Position on the balance sheet: Short-term liabilities
Recorded in accounts 131, 136, 138 with a remaining collection period of no more than 12 months or one normal production/business cycle of the enterprise. |
Position on the balance sheet: Long-term liabilities
Recorded in accounts 131, 136, 138 with a remaining collection period of over 12 months or one normal production/business cycle of the enterprise. |
| Significance | Determines the necessary working capital ratio to ensure the collectability of receivables; determines when to make provisions for doubtful debts. | Provides accurate and complete information about the enterprise’s financial situation to information users such as tax authorities, investors, etc. |
Comparison of short-term and long-term receivables
5. Comparing Accounts Receivable and Accounts Payable in a Business
In financial statements, the two concepts of accounts receivable and accounts payable always go hand in hand and have a direct impact on cash flow health. While accounts receivable represent the financial benefits a business is entitled to, accounts payable reflect the obligations the business needs to settle. Clearly understanding and balancing these two factors helps a business maintain liquidity while preserving its reputation in the market.
How do accounts receivable and accounts payable differ?
- Accounts receivable is the amount of money that customers or partners owe the business after receiving goods or services. Essentially, this is a type of current asset and is expected to be converted into cash in the future.
- Accounts payable is the amount of money the business owes to suppliers, tax authorities, or other entities. It is classified as a liability, representing a financial obligation that must be met on time.
To visualize this more easily, refer to the comparison table below:
| Criteria | Accounts Receivable | Accounts Payable |
|---|---|---|
| Nature | Asset | Liability |
| Related Parties | Customers, partners | Suppliers, tax authorities, employees |
| Cash Flow Impact | Increases assets but not yet cash | Decreases cash when due |
| Business’s Goal | Quick collection, limit bad debt | Reasonable extension to optimize working capital |
The key to financial management is balancing accounts receivable and accounts payable. If a business allows its receivables to swell, cash flow can easily become “frozen,” leading to a shortage of working capital for daily operations. Conversely, if accounts payable are too large and payments are frequently delayed, the business faces legal risks and loss of credibility with partners and employees.
A business is considered to have a healthy financial system when it can both collect debts quickly and manage payments reasonably. This balance helps optimize working capital, ensures transparency, and builds trust with stakeholders.
Comparing accounts receivable and accounts payable is not just for accounting purposes; it also gives the business a comprehensive picture of its cash flow. Knowing how to manage these two indicators well means the business can be more proactive in its financial strategy, minimize risks, and maintain sustainable growth.
6. Accounting principles for accounts receivable
Pursuant to Article 17 of Circular 200/2014/TT-BTC, the accounting principles for accounts receivable are as follows:
- A receivable is recognized as an asset on the Balance Sheet when the business has the right to demand payment of an amount of money, assets, or services from another party under a contract or legal regulation.
- Receivables are recorded in accounts 131, 136, and 138 with a remaining collection period of no more than 12 months or one normal production and business cycle of the enterprise.
- Receivables are classified into different categories based on the debtor, the type of currency, and other factors according to the management needs of the business.
- Receivables are recorded at their original cost, which includes the purchase price, production cost, value collected on behalf of the consignor, etc.
- Receivables are adjusted up or down according to their actual value when there is a change in the original cost of the receivable.
- A receivable is recognized as revenue when the business has completed its obligation to deliver goods, provide services, or transfer ownership or usage rights of assets to the buyer.
- A receivable is recognized as other income when the business has the right to demand payment of an amount of money, assets, or services from another party that is not related to the business’s production and business activities.
In addition, when accounting for receivables, businesses should note the following issues:
- For receivables with a collection period of more than 12 months or one normal production and business cycle, the business must make a provision for doubtful debts in accordance with legal regulations.
- For receivables in foreign currencies, the business must convert them to Vietnamese Dong at the actual transaction exchange rate at the time of occurrence.
- For receivables related to related parties, the business must account for them in accordance with the law on accounting.
Adhering to the accounting principles for accounts receivable will help businesses provide accurate and complete information about their financial situation to information users.
7. The relationship between accounts receivable and business cash flow
In financial management, accounts receivable and cash flow are as closely linked as “two sides of the same coin.” An increase in accounts receivable means the business has sold more goods and services, but if not collected in a timely manner, cash flow will be disrupted. This can easily lead to a situation of being “profitable on paper but cash poor.”
How do accounts receivable affect cash flow?
- When accounts receivable increase sharply
- Revenue is recorded as high, but cash has not yet been received → negative operating cash flow.
- The business must take out short-term loans to compensate, increasing financial costs.
- When accounts receivable are collected quickly
- Creates positive cash flow, providing the business with resources to pay salaries, pay suppliers, and reinvest.
- Reduces the pressure to borrow, increasing financial autonomy.
- When accounts receivable become doubtful or turn into bad debt
- Cash flow is completely lost, directly affecting solvency.
- Creates a risk of imbalanced working capital, and can even lead to bankruptcy for small businesses.
Real-world example:
A trading company records annual revenue of 50 billion VND, but 40% of this revenue is from credit sales to customers. If not managed well, by the end of the period, only 20 billion VND in cash might be collected, with the rest being accounts receivable. At this point, the company still reports a profit on its books, but in reality, it doesn’t have enough cash to pay suppliers and employee salaries → leading to a liquidity shortage.
Lessons for businesses:
- Closely monitor customer payment terms to avoid prolonged debt.
- Diversify collection policies: offer early payment discounts, use strict contracts.
- Use accounts receivable management software to forecast cash flow and warn of risks.
In summary, accounts receivable are not just an accounting figure, but a vital factor that determines actual cash flow. Businesses that manage their debts well will maintain a healthy cash flow, thereby enhancing their competitiveness and achieving sustainable development.
8. Conclusion
Accounts receivable are one of the important items on a company’s balance sheet. Accounting for receivables in accordance with prescribed principles will help the business provide accurate and complete information about its financial situation to information users.
1Office revenue and expenditure management software is a comprehensive solution that helps businesses effectively manage revenue and expenditure operations, including collecting debts from customers, internal revenue and expenditure within the business, and other receivables.
Sign up for a free trial of the revenue and expenditure management software
For more advice on the 1Office CRM revenue and expenditure management software, please contact us via:
- Hotline: 083 483 8888
- Facebook: https://www.facebook.com/1officevn/
- Youtube: https://www.youtube.com/@1office-chuyendoisodn
