Optimize management of customer receivables

Definition of a trade receivable

A trade receivable is an amount owed by a customer to your company in return for a good or service.

The amount due becomes a receivable when :

• The company has delivered a good or service to the customer.

• The invoice has been issued.

Where are trade receivables on the balance sheet?

Trade receivables are recorded on the assets side of the balance sheet. They become an asset for your company. In concrete terms, they belong to the "Financial fixed assets" category.

Customer receivables: which account number?

To enter a customer receivable in the accounts :

• Account 411 "Customers" is debited on the date the goods and/or services are delivered;

• In return, either account 701 "Sales of finished goods" or account 706 "Sales of services" is credited.

How do you calculate your accounts receivable?

To calculate your company's trade receivables, you need to add up all unpaid invoices.

Example of calculation of trade receivables :

Let's take a fictitious example: the start-up Impact, a web design software publisher. Here's a list of its unpaid and paid invoices.

Total trade receivables for the Impact startup amount to €1,735: 565 + 250 + 520 +400.

How do you analyze trade receivables?

Le DSO ou Days Sales Outstanding is the number of days required to collect all trade receivables. To calculate it, use the following formula: (accounts receivable/sales incl. VAT) x 360.

You get the average days sales outstanding . Customer payment terms are fixed according to the conditions set out in the contract. They must not exceed the maximum settlement period defined in the French Law on the Modernization of the Economy of August 4, 2008.

How to manage customer receivables

Here are 3 rules to follow to anticipate and avoid unpaid bills.

1. Establish General Terms and Conditions of Sale, including payment terms

You need to be clear with the customer from the outset when offering your products or services. Payment terms must be clearly stated in the sales conditions.

2. Create a "Customer follow-up" file or use accounting follow-up software

It's important to create a tracking file for all your accounts receivable. It must include the company's essential information:

• Identification ;

• Order tracking table ;

• Amount receivable ;

• Pace of receivables ;

• Time allowed.

3. Choose a fast, secure payment method

Choose reliable payment methods, such as credit cards, direct debits and bank transfers, to minimize the risk of payment incidents.

How long does it take to pay a trade receivable?

The government has set the 30-day payment term after delivery of the goods or provision of the service. However, this period may be extended beyond 30 days, without exceeding 60 days. This is the legal deadline for settling invoices between professionals, to limit late payments.

In 2021, supplier payment times will fall by one day to 48.3 days, compared with 49.3 days in 2020, according to the Group. Banque de France 2022 annual report .

How do you collect trade receivables?

Debt collection is essential to preserve your company's financial health. You have 2 options:

In-house coating

With in-house collections, you manage everything yourself, without the intervention of other parties to recover your outstanding payments . When an invoice is overdue, you must first make an amicable reminder. Then you must apply the late payment interest and penalty rate mentioned on the invoice when the due date is exceeded.

Delegate collection

Les collection agencies offer to manage your disputed invoices.

If you want to delegate your invoices before they become a problem, you can call on a factoring company (a bank or specialized player).

But most of these companies require you to sell all your invoices! Hero offers a modern factoring service: you choose the invoices concerned. Get in touch with one of our advisors.

Trade receivables: what are the issues, risks and impacts for your company?

Categories of trade receivables

There are several types of trade receivables:

• Incipient debt: the company cannot yet demand payment of the invoice, as it has not yet delivered the goods or services.

• Certain debt: the delivery note is signed and an invoice has been issued.

• Debt due: the payment due date has passed.

Managing the risk of non-payment

Unpaid invoices represent a net loss for your company. In 2020, during the health crisis, the late payment rate approached 9%. The proportion of long delays (i.e. those lasting more than 30 days) will stabilize at 6% in 2022.

Here are a few tips to help you avoid unpaid bills:

• Carry out a credit assessment and consult references to check your customers' creditworthiness.

• Draw up good commercial terms and conditions.

• Include a deposit in your payment terms for the most at-risk customers.

• Use a service like Hero, which can finance your invoices in advance.

The impact of trade receivables on cash flow

Unpaid receivables represent a loss of liquidity for your company. When receivables accumulate, they can hamper development and increase the need for cash flow financing.

Visit trade receivables are an essential part of your company's financial management. The aim: to maintain a healthy cash flow. Hero can help you manage your receivables with its modern approach and automatic payment reconciliation.

Frequently asked questions

What's the difference between receivables and debts?

A receivable is an amount owed to you by a third party (usually a customer). A debt is a sum you owe to a third party (a supplier, for example).

How do you say customer receivables in English?

An account receivable.

Is the amount of a trade receivable shown on the balance sheet as including VAT or excluding VAT?

A trade receivable is entered on the balance sheet inclusive of VAT.

Other articles on the same subject:

• Factoring: what is it and how does it work?

• Terms of payment: template, examples and deadlines to be applied

• How to easily calculate your accounts receivable

• Accounts receivable turnover: definition and calculation

• Loi Dailly: definition, operation and alternatives

• Customer collections: how do you manage them?