Get the free Flash Player Plugin.

Account Receivable: Asset or liability?

Aug 15th, 2011 | By | Category: Uncategorized

“Account Receivable” … Asset or liability? account receivable protection

Factors love account receivables – but so do collection companies. Asset based lenders are all over the place with them and banks can be anywhere from warm to ice cold … so why is there a difference in perception?

Account Receivable as an asset: When are accounts receivables a desired asset?

  • Account Receivables – backed by an invoice – must clearly define a completed transaction
  • The invoice must clearly define payment terms … and collection terms if the buyer doesn’t pay
  • Smartly: The invoice is backed by a purchase order that is signed by the buyer of the goods and services

Anything else?

  • A buyer/receiver of goods must be happy with the goods and acknowledges receipt of the goods
  • A buyer/receiver of the goods must be able to pay for the goods


Account Receivable: The liability

Account Receivable as a liability: What makes an account receivable a liability?

  • If, when you create an account receivable, you have taken on debt or obligations that you will have to pay in the future – it can be a liability. How about vendors? Payroll? Shipping? Installation?Utilities? Etc.
  • If problems with the product/service delivery may motivate the customer to hold back payment or force you to incur additional costs
  • If the customer cannot pay or has incurred an event to keep them from paying … whose holding the bag now?


So … how do we make sure that an account receivable is an asset  and not a liability so we don’t end up like our pennilless buddy here? 

  • Clearly define purchase orders/contracts
  • Ensure products and services were received and customers are happy
  • Credit check your customers … even the “old reliable” ones
  • Watch for changes in customer payment habits …
  • Maintain solid quality control … and know your product intimately


What do companies do that create account receivable and incur a liability … ?

  • Poor documentation of sales and/or terms of sales
  • Selling to anyone that wants to buy with no credit checks
  • Not following up sales or ensuring quality control

Why do factors love account receivable that fit the ‘asset’ definition? They are great collateral and they’ll capitalize your company if they are good.

Why do factors pall at the thought of accepting account receivable that fall into the ‘liability’ definition? They know the odds are that these will end up in collection.

My questions to you:

  • Why should you set yourself up to receive sixty or seventy cents on the dollar for a slow paying account receivable when you can get full value because you didn’t do that little extra?
  • Why should you risk your business for the sake of selling to someone that won’t pay you?
  • Why would you not document your dealings or provide good quality control with your customers?

Why do I write this? I consult with companies on how to factor nationwide and the above principles are what helps small companies grow if they are followed and sometimes bring large companies come to their knees if they don’t. That said here are “Ten questions you should ask about factoring” if ever you’re considering factoring or call me @ 1-877-813-2923 and let’s talk.

That said one of my favorite questions to ask some business owners I meet? “Why are you investing in your own demise?”

Sound harsh? It’s not as harsh as someone losing their business … or worse!

Take a step back and look at how you’re doing business and then be smart and build your company on assets using practices that keep them from becoming liabilities … because we all know where the wrong road will lead you!


Leave a comment »

  1. I’ve been browsing on-line greater than 3 hours lately, yet I by no means discovered any attention-grabbing article like yours. It is lovely worth enough for me. Personally, if all site owners and bloggers made excellent content material as you probably did, the internet shall be much more helpful than ever before.

  2. Hello There. I discovered your weblog using msn. That is a very smartly written article. I will be sure to bookmark it and return to read extra of your helpful information. Thanks for the post. I’ll certainly comeback.

  3. Enjoyed reading this, really very good stuff, appreciate it.

  4. Extremely interesting blog post. You consistently write a entertaining blog. I hope to find more very soon.

  5. Entertaining blog – thank you. I think your article was truly intriguing. I will come back very soon.

  6. Very riveting article. Really intriguing and professionally published blog. Cheers over again – I will come back.

  7. Very riveting post. You often write a fascinating blog. I hope to read more very soon.

  8. Extremely interesting post. This is a highly interesting post. I would like to discover even more soon.

  9. Normally I do not read post on blogs, but I would like to say that this write-up very forced me to try and do so! Your writing style has been amazed me. Thanks, quite nice post.

  10. It’s really a nice and useful piece of info. I’m satisfied that you shared this useful information with us. Please stay us up to date like this. Thank you for sharing.

  11. Hey there! Would you mind if I share your blog with my myspace group? There’s a lot of folks that I think would really appreciate your content. Please let me know. Thank you

  12. Please do. And if there are specific subject areas that contacts would like researched the floor is open!

  13. Hello there! This is kind of off topic but I need some advice from an established blog. Is it tough to set up your own blog? I’m not very techincal but I can figure things out pretty fast. I’m thinking about making my own but I’m not sure where to begin. Do you have any ideas or suggestions? With thanks

  14. Hey There. I found your blog the use of msn. This is an extremely smartly written article. I’ll be sure to bookmark it and come back to read extra of your useful information. Thank you for the post. I’ll certainly comeback.

  15. Fascinating blog! Is your theme custom made or did you download it from somewhere? A design like yours with a few simple tweeks would really make my blog stand out. Please let me know where you got your theme. Bless you

  16. Themes are identified from monotoring word searches people are doing and then looking to write about those that are most frequently sought. In essence? I try to offer the most good that I can. Hope that helps!

  17. The hardest part of things is:
    1.) Picking out topics that are relevent
    2.) Keeping the contact informative and useful – and not “salesy”
    3.) Being able to accept relevent as well as critical comments with a combination of appreciation, understanding, and objectivity
    4.) Keeping up with it and making the commitment to keep it happening

    That said: It’s a tough challenge – but if you’re passionate about it you’ll make it happen!


  18. I’m impressed, I must say. Really rarely must i encounter
    a blog that’s both educative and entertaining, and let me
    tell you, you have hit that the nail around the head.
    Your thought is outstanding; the issue is an element that too few
    persons are speaking intelligently about. I will be very happy that I came across this during my
    lookup for some thing regarding this.

  19. My wife and i got cheerful when Chris managed to round up his researching from the precious recommendations he came across while using the web page. It’s not at all simplistic just to happen to be releasing facts which other people could have been trying to sell. We discover we’ve got you to be grateful to for that. The specific illustrations you’ve made, the straightforward website navigation, the relationships your site give support to promote – it’s got many spectacular, and it’s really letting our son in addition to us imagine that the concept is excellent, which is tremendously pressing. Thank you for everything!

  20. Hey there! I know this is kinda off topic but I was wondering which blog platform are you using for this site? I’m getting fed up of WordPress because I’ve had problems with hackers and I’m looking at options for another platform. I would be awesome if you could point me in the direction of a good platform.

  21. I’ve been using WordPress. Let’s all hope for the best!

  22. Wonderful collection, Ernie, appreciate it. Bookmarked and shared 🙂

Leave Comment

This blog is kept spam free by WP-SpamFree.