trade receivable
Trade Receivable is money a business has earned by selling goods or services on credit, which customers still owe and have not yet paid.
In plain English
Here is the surprising bit. A company can report a healthy profit on paper, celebrate it, even pay tax on it, and still not have a single naira of that profit sitting in its bank account. That gap is often trade receivable.
When a business sells on credit, it records the sale immediately as revenue, because accounting counts the sale as done the moment goods leave the shelf or the service is delivered. But the cash has not arrived. What sits in its place is a promise, an IOU from the customer, and that promise is the trade receivable.
Take a Lagos fabric wholesaler who supplies a boutique owner ₦800,000 worth of ankara on the understanding that she pays in 30 days. The wholesaler's books show ₦800,000 in sales that month, which looks impressive, but his actual cash position has not moved by a kobo. That ₦800,000 sits as a trade receivable until the boutique owner settles up.
In the United Kingdom, a small design agency might invoice a client £5,000 for a finished project with 30 day payment terms. Until that invoice is paid, it is a receivable, an asset on paper that the agency cannot yet spend on rent or salaries.
This is why receivables matter so much to anyone reading a company's accounts, whether that is a Nigerian investor, a bank considering a loan, or someone abroad wondering if the family business back home is really as strong as it sounds. A pile of unpaid receivables can mean a business is growing sales but starving for cash, which is a calmly dangerous place to be.
A Lagos printing company delivers ₦1,200,000 worth of branded materials to a client in March with 45 day credit terms. The company records ₦1,200,000 in revenue that month, but the same amount sits as a trade receivable until the client actually pays, sometime in April or May.
Questions people ask
Is trade receivable the same as cash?
No, it is the opposite of cash in hand. It is money owed to the business by customers who bought on credit, and it only becomes cash once they actually pay.
Why would a business sell on credit instead of asking for cash upfront?
Because many customers, especially bigger ones, expect credit terms as standard practice, and refusing to offer credit can mean losing the sale entirely to a competitor who will.
What happens if a customer never pays the receivable?
The business may have to write it off as a bad debt, which is why many companies keep an allowance for doubtful accounts to cushion the blow when some customers simply do not pay.
Last reviewed