Receivable in accounting denotes a company's right to payment of a specific sum of money from a customer or client. Receivables typically arise from credit sales (invoicing) and are reported on the balance sheet as assets. For freelancers and small businesses, receivables are a central element of cash‑flow planning and receivables management.
Legal basis and accounting
Receivables must be recognized under commercial law as part of current assets or as other assets on the balance sheet (HGB). The relevant rules for valuation and presentation are contained in the German Commercial Code (Handelsgesetzbuch, HGB). For tax matters, the Income Tax Act (EStG) and the tax valuation principles are particularly relevant. VAT obligations arise under the Value Added Tax Act (UStG): issuing an invoice that shows VAT creates the obligation to remit that VAT to the tax authorities.
For dunning and process documentation, the principles for the proper management and storage of books, records and documents in electronic form (GoBD) must be observed.
Recording and posting in practice
When a receivable arises from an invoice, the accounting principle is: record the receivable at the invoice amount. Typical journal entries are two‑part: the receivable itself and the VAT.
Example entries
- Invoice for 1,190.00 EUR (incl. 19% VAT): Accounts receivable (trade) 1,190.00 EUR to Sales revenue 1,000.00 EUR and VAT 190.00 EUR.
- Payment received via bank: Bank 1,190.00 EUR to Accounts receivable 1,190.00 EUR.
- Customer discount / cash discount (Skonto): a cash discount reduces both the receivable and the VAT attributable to it; the VAT must be adjusted accordingly.
In the chart of accounts (e.g. SKR03/04), receivables are usually maintained on customer (debtor) accounts; debtor management (open‑item accounting) facilitates dunning and cash‑flow monitoring.
Valuation, allowances and default risk
Receivables are generally carried at nominal value. Under commercial law, however, allowances must be made when there are doubts about collectibility. There are two instruments:
- Specific allowance for individually at‑risk receivables (e.g. customer insolvency).
- General allowance to capture general default risks (based on industry or customer experience).
For tax purposes, stricter conditions often apply: allowances are frequently only tax‑deductible when the receivable has actually become uncollectible. If in doubt, consult your tax advisor about which allowances are permissible in the commercial versus the tax balance sheet.
Also important is the statute of limitations for receivables under the German Civil Code (BGB). The regular limitation period is three years; the period generally begins at the end of the year in which the claim arose (§195, §199 BGB).
Practical tips for freelancers and small businesses
- Clear payment terms: Agree payment terms, cash discounts and consequences of default in writing in quotes and invoices.
- Credit checks: For larger orders, a credit check or advance payment is worthwhile.
- Structure your dunning process: Use a standardized reminder sequence and document each step in a GoBD‑compliant manner.
- Default interest: In case of late payment you can charge default interest; the rate is governed by §288 BGB (between businesses generally 9 percentage points above the base rate).
- Factoring: Selling receivables can secure liquidity, but carefully consider costs and consequences.
- Documentation: Keep invoices, payment receipts and correspondence to be able to prove entitlement to receivables and losses (GoBD, tax traceability).
Receivables are more than mere balance‑sheet items: active receivables management improves your liquidity, reduces default risks and directly affects both tax and commercial reporting. For complex cases or uncertainty about tax treatment, consult your tax advisor.