In finance, the term accounts receivable denotes legal claims to payment. When a business provides a product or service to a customer at a pre-agreed price, the money owed by the customer to the business makes up part of the company’s accounts receivable.
Accounts receivable can be classified as assets because they represent claims to payments in real assets (typically in cash), much like other types of securities. Because accounts receivable have intrinsic value, they can be traded, bought and sold, provided the jurisdiction of the parties involved allows for this. Accounts receivable financing – also known as factoring – is one commonly-used method of trading accounts receivable.
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