It’s a straightforward process: a company delivers a product or service on credit, issues an invoice, and waits for payment. These outstanding balances sit in trade receivables until the customer pays.
DEFINITION
Accounts Receivables
Accounts receivable (AR) is a broader term that includes all outstanding payments owed to a business—whether from trade transactions or other sources.
This means that, in addition to trade receivables, accounts receivable can include non-trade receivables like loans to employees, tax refunds due, or rebates from suppliers.
Essentially, it’s money coming in that hasn’t been received yet. But the bigger picture involves credit policies, collection strategies, and financial health. A business with high accounts receivable may appear profitable, but if collections are slow, it can face cash flow issues.
That’s why tracking, aging reports, and credit risk management are crucial for maintaining a healthy financial position.
Trade Receivables vs. accounts receivable: Differences and similarities compared
Trade receivables and accounts receivable sound like the same thing—both involve money owed to a business. A company sells something, the customer pays later, and that unpaid amount sits in receivables until it’s collected.
Trade receivables only cover money tied directly to credit sales from business operations. Accounts receivable, on the other hand, is a bigger umbrella. It includes trade receivables but also other outstanding payments, like tax refunds, employee advances, or insurance claims.
This distinction matters. If you’re managing cash flow, tracking performance, or assessing risk, knowing what portion of your receivables comes from trade activities versus non-trade sources can impact financial decisions.
Here’s how they compare:
Trade receivables vs. accounts receivable: Key differences
| Criteria |
Trade receivables |
Accounts receivable |
| Definition |
Money owed for goods or services sold on credit |
All outstanding payments owed to a business, including trade receivables and non-trade receivables |
| Scope |
Limited to core business transactions |
Broader; includes trade receivables plus loans, tax refunds, and other receivables |
| Accounting category |
A subset of accounts receivable |
A broader category that includes trade receivables |
| Example |
A manufacturer sells machinery to a client on net-30 payment terms |
A company records a loan to an employee or expects a tax refund |
| Impact on cash flow |
Directly affects revenue collection and working capital |
Affects overall cash inflows, but some items may not be related to core business operations |
Both trade receivables and accounts receivable play a role in cash flow, but understanding their differences helps businesses better manage risk and financial planning.
- For businesses focused on sales operations: Trade receivables give insight into expected cash inflows and revenue health.
- For businesses managing a mix of income streams: Tracking broader accounts receivable ensures full visibility into outstanding payments beyond core sales.
By keeping receivables organized, businesses can improve collections, reduce bad debt, and maintain steady cash flow—key ingredients for long-term financial stability.
Trade receivables vs. accounts receivable: Key similarities
| Criteria |
Trade receivables |
Accounts receivable |
| Represents outstanding payments |
Yes—amounts owed from customers who purchased on credit |
Yes—includes all unpaid amounts a company expects to receive |
| Recorded as an asset |
Yes—listed under current assets on the balance sheet |
Yes—part of current assets, since payments are typically expected within a year |
| Impact on cash flow |
Directly affects cash flow—delayed payments can create liquidity issues. |
Impacts overall cash inflow—slow collection can restrict working capital. |
| Managed Through credit policies |
Yes—businesses set credit terms, assess risk, and follow up on payments |
Yes—credit policies help ensure timely collection across all receivables |
| Requires aging analysis |
Yes—aging reports help track overdue invoices and assess collection risks |
Yes—aging schedules monitor both trade and non-trade receivables |
Trade receivables and accounts receivable both represent money a business expects to collect. Whether it’s from selling products, providing services, or other outstanding obligations, these receivables reflect incoming cash that hasn't yet hit the bank.
In simple terms, a company extends credit, records the amount as receivables, and waits for payment. But while trade receivables and accounts receivable have key differences, they also share fundamental traits that impact liquidity, financial reporting, and credit management.
No matter the source, both need to be monitored, managed, and collected efficiently to keep a business financially healthy. While trade receivables focus solely on revenue from core business operations, both categories require structured collection efforts and risk mitigation strategies to ensure timely payments and a strong financial position.
Understanding the difference between trade and account receivables with examples
On the surface, trade receivables and accounts receivable seem interchangeable—they both represent money a business is waiting to collect. But the distinction becomes clearer when you look at specific financial transactions.
Trade receivables
Imagine a manufacturing company that specializes in industrial equipment. Over the past fiscal year, it generated $1.2 million in total sales. However, not all of that revenue has been collected yet.
A significant portion—$750,000—remains unpaid from customers who purchased on credit. Since this unpaid amount is directly tied to selling industrial equipment, it falls under trade receivables. In other words, trade receivables represent money owed from a company’s credit sales within its core business activities.
Account receivables
Now, let’s take a different scenario. A wholesale distributor sells $45,000 worth of goods to a retailer under a 30-day credit agreement. The retailer hasn’t paid yet, so this amount is recorded as trade receivables—just like in the manufacturing example.
However, in the same period, the distributor also advances $2,000 to a sales representative for travel expenses. While this is still money owed to the business, it is not tied to selling goods or services. Instead, it’s classified as a non-trade receivable.
Since accounts receivable includes all outstanding amounts owed to a business—whether from sales or other transactions—the distributor’s total accounts receivable balance is $47,000 ($45,000 in trade receivables + $2,000 in non-trade receivables).
Key takeaways
By understanding this distinction, businesses can gain a more detailed view of their receivables to track incoming cash flow—not just from sales, but from all sources of outstanding payments.
How to track and manage trade and account receivables
Tracking and managing receivables involves keeping a record of who owes you money and following up consistently until they pay. If everything runs smoothly, payments come in on time, cash flow stays steady, and your business operates without a hitch.
However, late payments from customers are common. Some invoices get lost, or sometimes clients want to extend their credit terms beyond what was originally agreed upon. If you’re not carefully managing your receivables, what starts as a minor delay can cause cash flow disruptions and financial strain.
So how do you stay ahead? Having a system that keeps receivables organized, predictable, and easy to follow up on is key. Let’s break it down.
1. Organize your receivables from day one
Before you can manage receivables effectively, you need a clear system for tracking them. That means:
- Separating trade receivables (from sales) from non-trade receivables (like employee advances or tax refunds)
- Recording due dates, credit terms, and payment statuses in an accessible, centralized system
- Keeping customer profiles updated with contact details and historical payment behavior
2. Set clear payment terms upfront
A vague or overly flexible credit policy invites delays. Make sure your payment terms are:
- Clearly stated on every invoice (e.g., Net 30, Net 60)
- Communicated before finalizing a sale, so customers fully understand expectations
- Backed by late payment penalties or incentives (such as discounts for early payments or interest for overdue balances)
3. Automate Tracking to Avoid Bottlenecks
Instead of manually tracking payments, you can use:
- Accounting software to centralize, monitor, and automate receivables
- Automated reminders to notify customers before invoices reach their due date
- Dashboards and aging reports to track outstanding balances and prioritize overdue accounts
The less manual work, the fewer mistakes and missed follow-ups.
4. Stay on top of follow-ups
Even well-meaning customers forget invoices. A strong follow-up process should include:
- A reminder schedule (e.g., one week before due, on the due date, and a week after)
- Friendly but firm escalation emails if payments are late
- A plan for overdue accounts, including payment plans or involving collections if necessary
5. Regularly review your receivables health
Every month, check:
- Aging reports (to spot increasing delinquency trends and high-risk accounts before they escalate)
- Collection rates (to measure how efficiently you’re getting paid)
- Customer payment trends (so you can adjust credit policies as needed)
The bottom line
Managing receivables isn’t just about knowing who owes you money, it’s about ensuring timely payments to sustain healthy cash flow. A strong system keeps payments predictable, prevents unnecessary delays, and helps businesses maintain financial stability.
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