Receivable

What is a receivable?

A receivable is the right of an individual or a company (creditor) to demand payment or another type of performance from another individual or company (debtor). Receivables often arise from contracts, such as the sale of goods or services.

A common example is an issued invoice that has not yet been paid by the debtor. Receivables are a core element of accounting and debt management as they impact the financial position of a company.

How does a receivable arise?

A receivable arises when the creditor has a legal basis to demand a payment or performance from the debtor. It typically arises through:

• Contractual agreements: A purchase or service contract leads to a receivable as soon as the service is rendered, e.g., after the delivery of goods.

• Statutory claims: Receivables can result from legal claims, such as compensation after unlawful conduct.

• Loan issuance: A receivable is created when a loan is disbursed, entitling the creditor to repayment plus interest.

• Public charges: Tax liabilities and fees are based on legal provisions and can lead to reminders or enforcement if unpaid.

What types of receivables are there?

Receivables can be categorized based on their origin, the underlying agreement, and the type of performance demanded. Here are some common types of receivables in detail:

1. Outstanding invoices

These arise when a company sells goods or services to customers and they have not yet been paid. Such receivables are also known as "trade receivables" and are an important part of financial accounting.

2. Compensation claims

These types of receivables occur when a creditor has a claim for compensation for incurred damages. This may arise from contract breaches or unlawful acts, such as property damage. The debtor is then obligated to compensate the damage, either through payment or other services.

3. Loan receivables

These are receivables that stem from issuing loans. The creditor is entitled to the repayment of the loan amount plus any applicable interest. Such receivables are typical for banks, financial service providers, and private lenders.

4. Tax receivables

These occur when government institutions have claims against individuals or businesses. An example is outstanding tax payments, which can be collected by tax authorities. This type of receivable holds a special legal status and can result in enforcement measures if unpaid.

5. Rent and lease receivables

When tenants do not pay their rent, the landlord has a receivable. Such receivables often include not just unpaid rent but also potential additional charges or late fees.

This overview shows that receivables can appear in many forms and carry various legal and financial implications. It is important to know the exact type of receivable to take appropriate steps in debt management.

What rights and obligations are there for a receivable?

Both creditors and debtors have specific rights and obligations when it comes to a receivable:

• Rights of the creditor: The creditor has the right to demand the agreed payment or performance. If the payment is not made, they can take measures such as reminders or legal action. They can also claim interest and fees for late payments, provided these are contractually or legally stipulated.

• Obligations of the debtor: The debtor must fulfill the receivable on time. This means making the agreed payment or delivering the performance to avoid additional costs or legal action. In case of financial difficulties, it may be advisable to negotiate an installment plan or another solution with the creditor early on.

These well-defined rights and obligations ensure that receivables can be properly claimed and fulfilled.

How can a receivable be collected?

The collection of a receivable refers to the process by which a creditor attempts to recover an outstanding receivable. This can be done in different ways:

1. Out-of-court collection

Initially, efforts are made to collect the receivable without involving the courts. Out-of-court collection includes sending reminders to the debtor and possibly engaging a debt collection agency, which acts as an intermediary and uses specific procedures to collect the receivable. Often, installment agreements can be arranged to reach an amicable solution.

2. Court-ordered collection

If out-of-court efforts fail, a court-ordered collection process can be initiated. This involves issuing a payment order to the debtor. If the debtor does not respond, the creditor can apply for an enforcement order, which leads to compulsory collection.

3. Compulsory enforcement

As the final step, a receivable can be collected through compulsory enforcement, such as garnishing bank accounts or assets. This is carried out by a bailiff and involves additional costs.

The collection process encompasses both amicable and legal measures to successfully recover a receivable. Creditors should always assess which method is most promising.