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What is a Net Receivable?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 10 November 2016
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    Conjecture Corporation
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A net receivable is the total current accounts receivables of a company, less any of those receivables that are considered bad debt. From this perspective, a net receivable can be defined as the amount of the current receivables that a business anticipates will eventually be collected. In most cases, this type of accounting figure is presented as a percentage in official company documents and press releases.

Identifying the net receivable is important to understanding the financial health of a business. Depending on the exact percentage, the receivable may indicate that the business is doing well, or that certain issues must be addressed before the stability of the company is undermined. A high receivable, such as 95%, would indicate that the company is in sound financial condition. By contrast, if the current receivable is under 80%, owners and officers would want to identify the reasons for the relatively high amount of bad debt, and determine what can be done to improve the receivables turnover ratio in the future.

Businesses of all types and sizes strive to generate the highest percentage of net receivable as possible. It is not unusual for companies to set a goal of keeping the percentage of bad debt at no more than 2%. This in turn would mean the business enjoys a net receivable of 98%, and is handling the task of collecting on outstanding invoices with a great deal of efficiency.

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When the percentage of a net receivable falls below what the company considers an equitable amount, steps are usually taken to identify what type of debt is remaining outstanding, how long that debt has aged, and what can be done to retire those debt obligations. In some cases, this involves turning over customer accounts that are seriously past due to a collection agency. Since agencies of this type routinely retain a portion of the funds they collect on behalf of clients, this means that the original owner of the debt will likely write off any difference between the amount received via the collection agency and the balance showing in the accounts receivables. An alternative approach is to sell the debt outright to another business for a small percentage of the total amount due, write off the difference, and clear that amount from the receivables altogether.

A less than desirable net receivable may also prompt changes in how a business extends credit, or in how specific customer accounts are managed. The business may implement stricter credit qualifications, making it easier to screen out potential clients that are less likely to keep their accounts current. For older customers who are delinquent, the company may require that those clients settle old balances before receiving access to additional goods or services. In some cases, a seriously delinquent client may be dropped altogether and not allowed to do business with the supplier again.

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