Definition:

Total Receivables refer to the aggregate amount of money owed to a company by its customers for goods or services delivered or used but not yet paid for. This includes all forms of receivables, such as accounts receivable, notes receivable, and other forms of credit extended to customers.

Examples

1. A retail company sells products on credit, and the total amount customers owe at the end of the month is recorded as total receivables.
2. A service provider invoices clients for services rendered, and the outstanding invoices contribute to the total receivables.

Formula:

Total Receivables = Accounts Receivable + Notes Receivable + Other Receivables

How to use the metric:

Total Receivables is used to assess a company's liquidity and credit risk. It helps in understanding how much of the company's assets are tied up in credit sales and can indicate the effectiveness of the company's credit policies and collection processes. Monitoring this metric over time can help identify trends in customer payment behavior and potential cash flow issues.

Limitations:

1. Total Receivables do not provide insight into the age of the receivables, which can affect their collectability.
2. It does not account for potential bad debts or uncollectible accounts, which can overstate the company's financial position.
3. It may not reflect the actual cash flow situation if a significant portion of receivables is overdue.

Applies to:

Total Receivables is applicable across various industries, particularly those with significant credit sales, such as retail, manufacturing, and service industries. It is crucial for businesses that extend credit to customers as part of their sales process.

Doesn't apply to:

Industries that primarily operate on a cash basis, such as certain segments of the food and beverage industry or small-scale retail operations, may find this metric less relevant. In these cases, the focus is more on cash transactions rather than credit sales.

Summary:

Total Receivables is a key financial metric that represents the total amount of money owed to a company by its customers. It is crucial for assessing liquidity and credit risk, especially in industries with significant credit sales. However, it has limitations, such as not accounting for the age of receivables or potential bad debts. While widely applicable, it may be less relevant for cash-based businesses.