Explain how a new firm’s receivables balance is built up over time.

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Explain how a new firm’s receivables balance is built up over time.

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Explain how a new firm’s receivables balance is built up over time.

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The company sells its products or services to customers either on cash or credit. When the products or services are delivered to customers, but the payment is not yet received, then the receivables are formed. This means that the company has extended a line of credit to its customers.
 
Since receivables are the money a company is yet to receive from its customers; therefore, they are recorded under the head current assets in the balance sheet of the company.
 
Moreover, the different types of credit policies offered by firms to customers result in a reduced line cash payments and thus the accumulation of receivables over time.

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