What are trade receivables?

Trade receivables represent the amounts billed by a business to its customers for goods or services that have been delivered but not yet paid for. This reflects a key element of a business's operations, as it indicates sales that have been made on credit. When customers purchase items or services and agree to pay at a later date, the amounts owed become trade receivables.

This financial metric is crucial for understanding a company's cash flow and operational efficiency. An increase in trade receivables may signal higher sales but could also indicate potential collection issues if customers are slow to pay. Monitoring trade receivables helps businesses manage their credit policies effectively and ensures liquidity is maintained.

In contrast, other options pertain to different financial concepts: outstanding debts refer to what a business owes rather than what is owed to it, cash reserves are liquid assets held by the business itself, and payments made to suppliers are categorized under payables, representing amounts the business must pay rather than amounts receivable. Understanding trade receivables is vital for managing both sales and cash flow within a business context.