Receivables in force: Overview, definition, and example
What are receivables in force?
Receivables in force refer to the outstanding amounts that a business is owed by customers or clients for goods or services provided, but which have not yet been paid. These receivables represent amounts due to the business and are considered part of its current assets. The term "in force" indicates that these receivables are active, meaning that the business is still actively expecting payment for these outstanding invoices. Receivables in force can include accounts receivable, notes receivable, and other amounts due from customers.
For example, if your business has sold products on credit and customers have not yet paid, those unpaid invoices are considered receivables in force.
Why are receivables in force important?
Receivables in force are important because they represent money that is owed to your business and can have a significant impact on your cash flow. Managing receivables effectively ensures that your business receives payment in a timely manner, which is crucial for maintaining liquidity and meeting financial obligations. High levels of receivables in force, especially if they are overdue, can indicate potential cash flow problems, and businesses may need to take action to collect these amounts.
For SMBs, closely tracking receivables in force helps maintain financial health, avoid cash flow issues, and improve the efficiency of collection efforts.
Understanding receivables in force through an example
Imagine your small business provides consulting services to clients. After completing a project, you send an invoice for $5,000 with payment due in 30 days. Until the payment is received, the $5,000 is classified as a receivable in force. This amount is included in your accounts receivable, reflecting the fact that you are expecting payment for the services already provided.
If one of your clients delays payment, that receivable in force could become overdue. In this case, it’s important to follow up with the client to ensure payment is received and to prevent cash flow disruptions.
An example of receivables in force in action
Here’s how receivables in force might be referenced in a financial statement or internal report:
“As of the end of the quarter, the company has $150,000 in receivables in force, which includes outstanding invoices from clients that are due within the next 30 days. These receivables represent a significant portion of the company’s working capital and will be closely monitored to ensure timely collection.”
Conclusion
Receivables in force represent outstanding amounts owed to a business by customers for goods or services provided but not yet paid for. Managing these receivables is crucial for maintaining healthy cash flow, ensuring timely payments, and minimizing financial risks. For SMBs, keeping track of receivables in force allows businesses to take action to collect debts and ensure financial stability.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.