Trade receivables represent the amount of money a business is entitled to receive from its customers for goods sold or services rendered on credit. In simple terms, these are the unpaid invoices or outstanding balances owed by customers, also referred to as accounts receivable. Managing trade receivables efficiently is vital for maintaining a company’s cash flow, liquidity, and overall financial health.

In accounting terms, trade receivables are recorded as current assets on the balance sheet since they are expected to be converted into cash within a short period, typically less than a year. They arise when a business allows its customers to make purchases on credit, creating a time gap between the sale and the actual payment. This practice helps strengthen customer relationships and can boost sales, but it also introduces the risk of bad debts if payments are delayed or uncollected.

Effective management of trade receivables involves setting clear credit policies, conducting background checks before extending credit, issuing timely invoices, and following up on overdue payments. Companies often use metrics like the receivables turnover ratio or days sales outstanding (DSO) to monitor the efficiency of their receivables collection process.

In financial markets, understanding trade receivables is essential for investors and analysts as it provides insights into a company’s operational efficiency and credit risk. A rising level of receivables might indicate higher sales but could also signal collection challenges, while declining receivables often reflect improved cash conversion. Properly managed trade receivables strengthen a company’s working capital cycle and enhance business stability—making it a key focus area in both accounting and financial analysis.