Trade receivables, also known as accounts receivable, are legally enforceable claims for payment held by a business for goods supplied or services rendered that customers have ordered but not paid for. They represent the amount of money customers owe a business for the goods or services they have received on credit. Trade receivables are generally in the form of invoices raised by a business and delivered to the customer for payment within an agreed time frame. They are shown in a balance sheet as an asset.

Trade receivables are all invoices for goods or services that have been delivered to customers or clients but haven’t yet been paid for. They are likely to be the largest asset on most businesses’ balance sheets, as they represent all the outstanding money owed to the business but is due soon. A company’s receivables may include both trade and non-trade receivables, with the latter including receivables which do not arise as a result of business sales, such as tax refunds or insurance payouts.

To record a trade receivable, the accounting software creates a debit to the accounts receivable account and a credit to the sales account when you complete an invoice. When the customer eventually pays the invoice, the accounting software records the cash receipt transaction with a debit to the cash account and a credit to the accounts receivable account.

Trade receivables are important for a range of factors. Most importantly, they play a significant role in ensuring that a business has a healthy cash flow. By ensuring that trade receivables are collected in a timely fashion, a business can make sure that it has enough cash on hand to pay its own bills and invest in growth.