Accounts receivable is the amount of debts owed to a company by other companies or individuals, arising as a result of business relationships. In accounting, it refers to the company's current assets. Proper management of accounts receivable helps to increase the volume of product sales and contributes to the financial stability of the organization.
There are two types of accounts receivable:
- for goods and services for which payment is not due;
- for goods and services not paid for on time (expected on time, difficult to sell, doubtful, hopeless).
Collection of accounts receivable
The right to receive receivables refers to the property rights of the company. Collection of receivables is carried out in one of two ways:
- in a pre-trial manner by drawing up and sending justified claims to the debtor;
- through an arbitration court (if the debtor is a legal entity or entrepreneur) or a court of general jurisdiction (if the debtor is an individual), in compliance with the claim procedure and in the presence of an evidence base (documents confirming the fact of the debt).
Expired statute of limitations on accounts receivable
The limitation period is the period established by law for the protection of violations of rights in court. The general statute of limitations is 3 years from the moment the violation of the company’s rights began. In some cases, it may be increased or its countdown may be interrupted and started again. Accounts receivable that have expired are considered uncollectible and must be written off. On the last day of the reporting period in which the receivables' statute of limitations has expired, the company includes them in non-operating expenses.
Repayment of accounts receivable
Repayment of receivables occurs if the debtor has settled with the company. The settlement can be carried out voluntarily or in court. The repayment date must be clearly stated in the agreement between the company and the debtor. If there is no such indication, the repayment date is considered to be seven days after the request is sent to the debtor. Analysis, control and planning of repayment of receivables will reduce its volume and ensure the financial stability of the company. Typically, such functions are performed by financial services of companies.
Accounts receivable calculation
To control and analyze the financial condition of the enterprise, accounts receivable are calculated at the end of the reporting period. Its amount is determined by the formula: accounts receivable at the end of the previous period plus the cost of the shipped goods minus the amount of proceeds from the sale of products. In addition to calculating the amount of receivables, additional indicators such as turnover, market value, collection period are determined for analysis, and their structure is also determined.
Write-off of accounts receivable
If the debtor has not repaid the receivables, then they are written off:
- upon expiration of the limitation period;
- when the creditor releases the debtor from obligations;
- in case of impossibility of fulfilling obligations, if it is caused by force majeure circumstances (changes in legislation, natural disasters, etc.);
- liquidation of the debtor.
Accounts receivable are written off at the end of the reporting period after taking inventory, based on the order of the manager. Debt is included in non-operating expenses of the enterprise.
Accounts receivable period
The repayment period for the debtor's obligations is determined by the contract. The next day after the expiration of this period, the receivables are considered overdue. The creditor can send a claim to the debtor or go to court to collect funds. If the agreement provides for a penalty or other penalties, they begin to accrue. When going to court, the statement of claim indicates the principal amount of the debt and the amount of accrued fines. If it was not possible to repay the debt within the period allotted by law, it can be written off in the prescribed manner.
Advice from Sravni.ru: Companies need to control the size of receivables, develop clear rules for working with debtors, and loan limits.
Remote assets are one of the most liquid assets of any company. Therefore, the company can sell it, transfer it, exchange it for property, products, the result of providing services or performing work. It should also be taken into account that with large amounts of deferred payments, there may be a lack of funding for the organization itself.
The majority of accounts receivable are unpaid invoices (or invoices receivable) for products delivered. But there is also a specific element - these are bills receivable, which are, in fact, commercial securities.
Types of remote sensing
There are two groups of items in the asset balance sheet sections:
- Short-term loan - repayment is expected within a year after the reporting date.
- Long-term - more than 12 months, respectively.
Depending on how the DM was formed, 3 types can be distinguished
- Normal. It arises during the implementation of the enterprise’s production tasks and is determined by the current forms of payment. When the organization operates as usual, payment occurs within one month.
- Acceptable. This category includes advances for the purchase of agricultural products, claims against contractors for short supply of material, debts of accountable persons, and similar negative examples.
- Unjustified. May arise as a result of violation of discipline, both settlement and financial. Debts can also be caused by deficiencies in accounting, shortages, or theft.
PD can also be divided into
- Real, which debtors will probably be able to repay on time.
- A dispute that an enterprise can settle through legal proceedings.
- Hopeless, the prospects for payment of which are virtually zero. When the statute of limitations expires, it will be necessary to write off the “debt” at a loss.
If we consider debt as an accounting object based on the payment term, then it can be
- Deferred, the maturity date of which has not yet arrived.
- Overdue, for which the deadline for fulfilling obligations has already arrived.
DZ insurance
The receivables insurance mechanism is as follows:
- The organization and the insurance company enter into an agreement. It must define and clearly state the key terms of the insurance contract. This includes a complete list of insured events and the procedure for assessing the financial situation of debtors.
- The insurer, together with the policyholder, determines the composition and volume of receivables that will be subject to insurance. It is important to consider that the insurance company will not insure the liability as a whole, but will necessarily assess the risks of non-payment for each client of the insured.
- If an insured event does occur, then the insurer pays the insured company the amount of the insured liability minus that part of the debt amount that will be written off as the latter’s expenses. After this procedure, all claims on the debt are transferred directly to the insurance company.
Before concluding such an agreement, an enterprise is still recommended to compare the upcoming costs and possible benefits from this type of insurance.
It can be concluded that in order to ensure competitive commercial conditions for its counterparties (debtors), the organization should find an additional way to finance its own expenses during the deferment period. This is the most rational approach, because an increase or decrease in the amount of receivables has a tremendous impact on the turnover of capital invested in current assets, and, as a consequence, on the overall financial position of the organization as a whole.
Many persons engaged in financial and economic activities are faced with the need to carry out certain legal work with counterparties aimed at repaying their debts.
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Obligations usually arise when payment is deferred—buyers can either pay on time or fall behind on their obligations.
Peculiarities
Repayment of accounts receivable is a procedure for paying debts to counterparties that arose as a result of legal relations (delivery of goods, performance of services or work).
The parties to the relationship are:
- debtor (also known as debtor, defaulter);
- creditor (aka creditor).
Despite the fact that the direct defendant in a dispute is the organization that is overdue for payment under the contract, the law regulates the possibility of bringing to justice other persons who were not directly involved in the transaction, but are somehow related to the debtor.
For example, in the event of bankruptcy of an enterprise, the founders (in the event that the actions of the latter led to liquidation), the parent organization (in the event of bankruptcy of a branch division), etc. may be held vicariously liable.
The repayment procedure is divided into several stages:
- identification of the counterparty's debt - for this purpose, an inventory is carried out (both planned and unscheduled), as a result of which the exact amount of the debt will be determined;
- sending a letter of claim to the counterparty, which contains demands for pre-trial settlement of the issue;
- if the debtor has not taken appropriate measures for repayment at the pre-trial stage, preparations for the trial begin - preparing a statement of claim and documents certifying the transaction;
- the market value of receivables is determined;
- the court makes a positive or negative decision on collection;
- the case is transferred to the bailiffs, who initiate enforcement proceedings.
Receivables are classified into the following types:
- normal;
- expired;
- hopeless.
If the debt is already overdue, measures should be taken against the counterparty before it becomes uncollectible.
Sometimes counterparties have mutual obligations. That is, one party owes the other, and the other, in turn, has an obligation.
In this case, repayment can be made by offsetting claims - that is, the creditor of one counterparty is repaid at the expense of the debtor of another. The balance of the debtor's amount, which exceeds the creditor's amount, will need to be collected either pre-trial or in court.
How to repay
Debt collection can be done in two ways:
- in a pre-trial manner;
- during legal proceedings.
Before going to court, each legal entity with receivables must carry out proper claims work with defaulters.
Pre-trial activities are carried out in the following forms:
- interaction with the debtor through telephone conversations or correspondence via electronic communication channels;
- personal meetings with the head of the debtor company;
- written complaints.
The last two methods are most effective - personal meetings and mail.
Advice! When considering the case, the court will take into account whether appropriate pre-trial work was carried out with the debtor. Claims submitted in writing are the best evidence for the court.
However, both telephone conversations and personal meetings can be witnessed - any means of audio/video recording is suitable for this.
If all pre-trial measures have not prompted the debtor to fulfill his obligations, one should not waste time and start the legal process as soon as possible.
After all, when collecting a debt, there is a statute of limitations, if this is missed, the only way out will be to write off the receivables that are already hopeless for collection.
The company has the right to make concessions for the counterparty - for example, to provide a deferment on payment for an even longer period, or to spread out the payment (payment will not be a one-time payment, but, for example, in small monthly amounts), or even “forgive” part of the debt .
The main thing is to document the relevant “benefits” in order to further prove that the counterparty was provided with preferential conditions, but the debt was never repaid.
Receivables repayment period
When analyzing financial results, to assess the sustainability of an enterprise in the short and long term, a coefficient such as the average repayment period of receivables is used.
The duration of repayment of receivables for the year is calculated according to the following formula:
- DSO = DAP * AR / NS,
Calculation example. The duration of one reporting period in the company is 365 days. Accounts receivable as of the beginning of the reporting period were 50 million rubles, and at the end – 70 million rubles.
Revenue from all types of sales of goods and performance of services, respectively, is 350 and 400 million rubles. It is necessary to calculate the change in the receivables collection period ratio.
Solution. We determine the coefficient at the beginning of the reporting period:
- DSO = 365 * (50 / 350) = 52.14 days.
We determine the coefficient at the end of the reporting period:
- DSO = 365 * (70 / 400) = 63.88 days.
Now we determine the change in the period coefficient at the beginning and end of the reporting period:
- DSO final / DSO initial = 1.2252, which is 22.52%.
Answer. The accounts receivable period ratio for one year increased by 22.52%.
Letter to counterparty
There are many ways to interact with the debtor - these include telephone conversations in order to encourage the fulfillment of obligations, and personal meetings with the head of the company, and sending a special request by registered mail to the legal address of the debtor.
A letter to the counterparty is the most effective way to pre-trial debt collection.
After all, postal exchange of correspondence obliges the debtor to at least send a response letter, which contains information about the reasons for the delay and repayment terms.
And this means a lot - if the debtor has responded to the letter, it is likely that he is ready for a constructive dialogue and resolving the issue without litigation.
Important! The letter must be drawn up in the form of a claim and must contain a demand to repay the debt or to perform other actions provided for by law or agreement of the parties.
The claim is made in free form or on the organization’s letterhead. What exactly to include in the letter is decided by the organization itself.
- grounds for the occurrence of debt (details of the contract, agreement, act, etc.);
- the amount of debt based on the results of the inventory (it would be useful to confirm the amount of obligations by attaching a detailed calculation);
- the period allotted to the debtor to fulfill obligations voluntarily;
- penalties that will be applied to the debtor if the requirements are ignored;
- if necessary, payment details;
- signature of the head of the company, legal address and contact information.
In addition to sending by registered mail to the legal address of the debtor company, the claim can also be served in person. In this case, two copies of the document will be required - one copy remains in the hands of the debtor, the second - with the creditor.
Accounts receivable can be terminated by fulfillment of the obligation, including offset, can be sold, and also written off as unrealistic for collection.
The resulting receivables can be terminated by the fulfillment of the obligation, either by the debtor personally or by a third party on his behalf.
Payment for services, in particular, is recognized as the receipt of funds into the accounts of the taxpayer (creditor) [sp.2, article 167] of the Tax Code of the Russian Federation. However, from whom the funds must come in order to be recognized as payment for services is not specified in the Tax Code; therefore, this rule applies to the receipt of funds, both from the debtor himself and from a third party by default, in other words, “transfer (sale) ) to another person.
The right of the original creditor passes to the new creditor to the extent and on the conditions that existed at the time of transfer of the right. The new creditor provides the debtor with evidence of the transfer of the claim to this person, which includes the following documents:
Notification from the original creditor to the debtor about the assignment of the right of claim;
Originals of primary documents confirming the debt, according to which the right of claim has been transferred to the new creditor.
As a rule, the right of claim is transferred to a new creditor on a reimbursable basis, that is, the receivables are sold.
In practice, there are cases when obligations under contracts for the supply of goods (works, services) are extinguished by offsetting mutual claims, which is one of the ways to terminate counter obligations.
The netting is reflected in the accounting records by posting:
Debit 60 (76) Credit 62 (76) - reflects the repayment of mutual debts in the amount of the offset.
Unfortunately, almost every organization at some stage has a situation where counterparties do not repay their debts on time. Violation by buyers and customers of payment terms for the provided assets leads to the emergence of receivables, the repayment of which becomes doubtful or unrealistic. In practice, organizations often encounter problems when writing off accounts receivable.
Accounts receivable can be written off as unrecoverable after the expiration of the statute of limitations or due to the impossibility of fulfilling the obligation.
The limitation period for writing off overdue receivables is established by the Civil Code and is three years [Art. 196] Tax Code of the Russian Federation. Its beginning is determined by the deadline for fulfilling obligations, which is indicated when concluding the contract [clause 2 tbsp. 200] Civil Code of the Russian Federation. If the date for fulfillment of obligations is not specified in the contract, it is necessary to proceed from a reasonable period, after which the debtor is given seven days to fulfill the demand presented by the creditor [Art. 314] Civil Code of the Russian Federation.
In accordance with clause 77 of the Regulations on accounting and financial reporting in the Russian Federation, receivables for which the statute of limitations has expired, and other debts that are unrealistic for collection, are written off for each obligation based on the inventory data, written justification and order of the head of the organization and are included in financial results if in the period preceding the reporting period the amounts of these debts were not reserved. Therefore, the documents confirming the validity of the costs of writing off receivables are:
An inventory act of settlements with customers, suppliers and other debtors and creditors for the period in which circumstances arose indicating that the debt was hopeless for collection;
An order to write off an uncollectible debt.
The main purpose of the inventory is to confirm the accuracy of the accounting of debts and obligations, to establish the timing of their occurrence and repayment.
The time for conducting the inventory is determined by the manager by his order, as well as the composition of the inventory commission. It is possible to conduct an inventory within the time limits specified in the organization’s accounting policies. The results of the inventory are documented in an act using the unified form N INV-17 “Inventory act of settlements with buyers, suppliers and other debtors and creditors”, approved by Resolution of the State Statistics Committee of Russia dated September 18, 1998 No. 88 “On approval of unified forms of primary accounting documentation for accounting of cash transactions, for recording inventory results."
The organization must keep supporting documents for all business transactions, including accounts receivable, for at least five years [clause 1 tbsp. 17] Law on Accounting No. 129-FZ. The period established by tax legislation for storing documents necessary for the calculation and payment of tax is four years [clause 8, clause 1, art. 23] Tax Code of the Russian Federation. Storage of primary documents is a responsibility, not a right of the organization. Therefore, an organization that has not retained the primary accounting documents for accounts receivable with an expired statute of limitations is called into question the grounds for writing it off as a reduction in taxable profit as part of non-operating expenses [clause 2, clause 2, article 265] of the Tax Code of the Russian Federation and the possibility of writing it off to financial result of the organization. The storage period for documents confirming the inclusion of a particular amount in accounts receivable should be calculated from the moment it is written off. Indeed, in order to write off receivables after the statute of limitations has expired, the organization needs to confirm its occurrence. In addition, the debt inventory act and the manager’s order to write off the bad debt must also be kept from the date of the transaction, that is, from the moment it was written off.
In addition, in order to recognize a debt as bad due to the expiration of the statute of limitations, documents are required that allow one to accurately establish the date of occurrence of the receivables and the expiration of the statute of limitations. Such documents can be: a contract, an invoice for payment, a certificate of work performed, services rendered.
Reflection in accounting of the write-off of receivables depends on whether a reserve for doubtful debts is created or not and, therefore, written off using one of the following methods:
On the financial results of the organization’s activities (if debt amounts were not reserved);
Due to the reserve for doubtful debts.
If a reserve is not created, the written off debt, and in the amount in which it was reflected in the accounting records, is included in the financial results. Write-off receivables are included in other expenses [pp. 11 and 14.3] PBU 10/99 “Expenses of the organization.” According to clause 77 of the Regulations on Accounting and Accounting Reports in the Russian Federation, writing off a debt at a loss due to the insolvency of the debtor is not an annulment of the debt. Within five years from the date of write-off, the amount of the written-off debt is recorded in account 007 “Debt of insolvent debtors written off at a loss.” Analytical accounting for account 007 is maintained for each debtor whose debt is written off at a loss, and for each debt written off at a loss.
In accounting, the write-off of accounts receivable in this case is reflected in the following entries:
Debit 91-2 Credit 62 (60.76) - the amount of receivables is written off (including VAT);
Debit 007 -- the amount of written off receivables is taken into account on the balance sheet.
If a reserve is created, amounts of receivables with an expired statute of limitations are written off from the funds of the created reserve. At the same time, the amount of debt written off is taken into account off-balance sheet. In accounting, the write-off of accounts receivable in this case is reflected in the following accounting entries:
Debit 63 Credit 62 (60.76) - the amount of receivables is written off from the created reserve;
Debit 007 - the amount of written off receivables is taken into account on the balance sheet.
If the written-off debt is repaid, that is, the amounts due to the organization have been received from buyers in collection, the amount of debt is written off off-balance sheet accounting and reflected in the other income of the organization [clause 7] PBU 9/99 “Income of the organization.” The following entries are made in accounting:
Debit 51 (50) Credit 91-1 - reflected in other income is the amount of written off debt returned by the debtor;
Loan 007 - the amount of the repaid debt is written off from the off-balance sheet account.
If the accounts receivable are not written off, but a reserve for doubtful debts was created for this debt, and the debtor repays the debt, the amount of the reserve must be restored. In this case, the following entry is made in accounting:
Debit 63 Credit 91-1 - the amount of the reserve created when the debtor repays receivables was restored.
Formation of reserve.
The formation of doubtful debts is one of the types of so-called valuation reserves. The current accounting legislation provides for the accrual of three types of valuation reserves by organizations:
Reserves for reducing the value of material assets;
Reserves for impairment of investments in securities;
Provisions for doubtful debts.
The creation of such valuation reserves in accounting follows from the requirement of prudence for the accounting policies of the organization drawn up for the purpose of accounting. The accounting policy adopted by the organization for accounting purposes must ensure greater readiness to recognize expenses and liabilities in accounting than possible income and assets, preventing the creation of hidden reserves, taking into account the requirement of prudence. [clause 7] PBU 1/98 “Accounting Policy” organizations"
Clause 70 of the Accounting Regulations, which is an accounting regulatory document, states that an organization can create reserves for doubtful debts for settlements with other organizations and citizens for products, goods, works and services, attributing the amounts of reserves to the financial results of the organization. The amount of the reserve is determined separately for each doubtful debt, depending on the financial condition (solvency) of the debtor and the assessment of the likelihood of repaying the debt in whole or in part.
Deductions to reserves for doubtful debts, created in accordance with accounting rules, are other expenses for the organization. For this reserve, a special account 63 “Reserves for doubtful debts” is provided [clause 11] PBU 10/99.
The amount of the reserve for doubtful debts calculated on the last day of the reporting period is reflected by the posting:
Debit 91-2 Credit 63 - a reserve for doubtful debts has been created.
The write-off of the amount of the reserve for doubtful debts on the date of repayment by the buyer of debt previously recognized by the organization as doubtful is reflected in the following entries:
Debit 51 Credit 62 - cash received;
Debit 63 Credit 91-1 - reflects the write-off of the amount of the reserve for doubtful debts.
In accordance with clause 70 of the Accounting Regulations, if by the end of the reporting year following the year in which the reserve for doubtful debts was created, this reserve in any part is not used, the unspent amounts are added to the balance sheet at the end of the reporting year. financial results. The wiring is made:
Debit 63 Credit 91-1 - unused amounts written off.
