What are trade receivables?
Trade receivables is a term that refers to a receivable that is generated by a company from selling a good or service. Trade receivables can be in two different forms:
1) Accounts receivable (A/R) – Accounts receivables are oral or written amounts due from a customer or client and are associated with sales made on credit. Accounts receivables will be recorded when the sale of a product or the provisions for services rendered to clients have been delivered or provided before they have been paid for. Accounts receivables will be recorded as short-term assets (current) as they are typically claimed within 30-90 days. Therefore, unlike notes receivable, accounts receivable will not have interest associated with it.
2) Note receivable (N/R) – Notes receivables are account balances that can either be considered short-term or long-term (typically long-term) depending on when they are expected to be converted into cash. Unlike accounts receivable, notes receivable are written promises to receive money at a future date. Notes receivable will include the repayment of both the amount due (principal) as well as an interest element based on the associated interest percentage.
The visual below summarizes the differences between accounts receivable and notes receivable.
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