Keep in mind that in the world of business and finance, there are always two sides to every event or transaction. If there’s a buyer, there’s a seller. If someone wins, somebody else loses. If ABC Corp. has a receivable from XYZ Corp., then XYZ Corp. has a payable to ABC Corp. If XYZ Corp. refuses to pay the payable, then ABC Corp. ends up with an uncollectible receivable.
In general, a receivable means that money is expected to be collected in the future and a payable means that money is expected to be paid in the future.
The specific nature of the receivable and payable is important for our analysis. Receivables and payables are either “trade” or “non-trade”. “Trade receivables” and “trade payables” arise from the normal daily operations of: a) buying inventory from suppliers with the promise to pay the supplier in the future; and b) selling the inventory to customers with a promise from the customer to remit payment in the future. “Trade receivables” and “trade payables” are an important part of our analysis because they are among the core items of “working capital”. “Non-trade receivables” and “non-trade payables” are, in general, non-operating fluff items…these are not too important in our analysis.
In the analysis of working capital, “trade receivables” and “trade payables” are used.
