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Accounts receivable classification 
Classification feature 
Kinds 
1. Liquidity ratio 
- highly liquid 
- medium liquid 
- illiquid 
2. Elements 
- debt of buyers and customers 
- bills receivable 
- advances paid 
- debt of affiliates and subsidiaries 
- other debtors 
3. Maturity 
- short term 
- medium term 
- long term 
4. Warranty 
- secured receivables 
- unsecured 
5. The degree of reliability of the return 
- reliable 
- doubtful 
- hopeless 
6. The degree of exposure to planning 
- planned 
- unplanned 
 
Short-term receivables (with maturities up to one month) are highly liquid; 
bad receivables that cannot be converted into cash are illiquid; all other types of 
 
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receivables, with the exception of short-term and uncollectible, are medium 
liquid. 
The most common in domestic accounting practice is the classification of 
receivables by items. We characterize each of them: 
- debt of buyers and customers due to their debt for goods shipped, work 
performed, and services rendered 
- bills receivable - debts of buyers and customers for goods shipped, work 
performed, and services rendered, drawn up by commodity bills 
- advances paid - arrears on advances paid against upcoming deliveries of 
products, work, or services 
- debt of affiliates and subsidiaries 
- other debtors: debts of accountable persons, on taxes and fees, on 
employee loans and others. 
These types of receivables can be grouped as: accounts receivable for core 
activities and receivables for other operations. 
By maturity, receivables can be divided into: 
- short-term, such is considered receivables with a maturity of up to 30 days 
- medium-term - receivables with a maturity of 1 to 12 months 
- long-term - over 12 months 
Depending on collateral, receivables are classified as: 
- secured by guarantees 
- not guaranteed 
Accounts receivable may be secured by forfeit, pledge, withholding of 
property of the debtor, surety, bank guarantee, deposit and  other means 
stipulated by law or contract. 
The degree of reliability of the return of receivables can be distinguished
3
: 
- accounts receivable is recognized as reliable if the counterparty confirms 
the fulfillment of their obligations, as well as debts secured by a guarantee 
- doubtful debt is any debt to the taxpayer that has arisen in connection with 
the sale of goods, performance of work, or the provision of services, if this debt 
has not been repaid by the deadlines established by the contract, and is not 
secured by a pledge, guarantee, or bank guarantee 
- bad debts (debts unrealistic to collection) are those debts to the taxpayer 
for which the statute of limitations has expired, as well as debts for which, in 
accordance with civil law, the obligation was terminated due to the impossibility 
3
 In accordance with Chapter 25 “Corporate Income Tax”, part II of the Tax Code, Article 
266, “Any debt to the taxpayer is recognized as doubtful debt if this debt is not paid by the 
deadlines established by the contract and is not secured by a pledge, surety or bank guarantee. 
Bad debts are those debts to the taxpayer for which the statute of limitations has expired, as 
well as debts for which, in accordance with civil law, the obligation was terminated due to the 
impossibility of its fulfillment on the basis of an act of a state body or liquidation of an 
organization.” 
 
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of its fulfillment, on the basis of an act of the state body or liquidation 
organization 
According to the degree of exposure to planning, one can distinguish: 
-  planned receivables 
-  unplanned receivables 
The expected amount of  debt under the terms of the contract, which 
provides for deferral, installment payment, is planned. Other types of debt are 
unplanned. 
It should be noted that, depending on the specifics of the enterprise, it is 
possible to distinguish the types of receivables that are characteristic to a greater 
extent of a business entity. Thus, turnover-oriented enterprises can afford a large 
share of receivables to expand markets for products, work, and services, 
therefore, such organizations will be dominated by the debt of buyers and 
customers. Perhaps the receivables will be long-term due to the need to offer 
more favorable conditions to their consumers because of high market 
competition. 
In turn, industrial companies control their receivables more closely, i.e. it is 
more planned and guaranteed. Also, short-term receivables prevail in non-
rotationally oriented enterprises, since they are highly liquid, which is necessary 
for organizing a continuous production process. 
Of course, one should not forget about such enterprises, which are part of 
holdings and are subsidiaries or branches, the accounts receivable of such 
companies will also include controlled debt, that is, the debt of the parent 
organization, this is undoubtedly a favorable moment, since the opportunity 
control is higher and the probability of its return is greatest. 
Accounts receivable management is a separate function of the working 
capital management policy, the main purpose of which is to increase the 
company’s profit through the efficient use of accounts receivable as an 
economic tool. 
To determine how to organize the most effective receivables management 
system, you first need to identify what factors affect its education. 
External factors: 
1) the state of the economy in the country (the decline in production 
increases the size of receivables) 
2) the state of settlements in the country (non-payment crisis leads to an 
increase in receivables) 
3) inflation rate (with high inflation, the later the term for paying the debt, 
the lower the amount of debt) 
4) seasonality of production (if it is a seasonal product, then the receivable 
increases) 
5) the capacity of the market and its degree of saturation (if the market is 
small and saturated with a certain type of product, difficulties arise with its sale) 
Internal factors: 
 
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- the credit policy of the enterprise (incorrect setting of terms and 
conditions for granting loans, not providing discounts for early payment of bills, 
incorrectly established criteria for solvency, errors in determining the solvency 
of customers, unaccounted risks can lead to an increase in debt) 
- types of settlements used by companies (the use of types that guarantee 
payment reduces the number of receivables) 
- the state of control over receivables 
External factors do not depend on the activities of the organization, and it is 
impossible to limit their impact on the accounts receivable of an enterprise. 
Internal factors depend on the company itself, on how much the financial 
manager for working with receivables manages his responsibilities. Given the 
above factors, the organization will be able to formulate an optimal receivables 
management system. These approaches have common stages of receivables 
management, which are mainly aimed at regulating internal factors: 
a) Analysis and ranking of customers, which is carried out depending on 
the volume of purchases, the credit history of the buyer and the terms of 
payment for the products. 
b) The use of various models of agreements with partners with flexible 
terms of forms of payment and pricing - from prepayment or partial payment to 
the use of factoring or a bank guarantee. 
c) Definition of the policy of granting credit and collection for various 
groups of buyers and types of products (credit policy). 
d) Control over the formation and condition of receivables, which is 
necessary to prevent an excessive increase in receivables and the occurrence of 
bad debts. 
e) Control of settlements with debtors for deferred and overdue debts 
(based on the register of aging of receivables, which contains the main debtors 
in descending order of receivables with an indication of its share in current 
assets). 
f) Forecast of cash receipts from debtors for deferred and overdue debts 
(based on collection coefficients). 
Using all the stages considered when working with accounts receivable, the 
probability of repayment of debts will increase, the share of overdue debts will 
decrease, as a result of which the financial and economic performance of the 
enterprise will improve. 
The quality of receivables is directly affected by a comparison of the 
amount of debt and its dynamics with changes in sales. If the growth of 
receivables is not accompanied by a corresponding increase in revenue, we can 
talk about an increase in the maturity of receivables, which indirectly indicates a 
decrease in its quality. 
A set of measures to collect receivables at the enterprise is an integral part 
of the entire credit policy of the organization. The variety of different economic 
situations has led to the fact that in addition to the traditional monitoring of the 
 
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status of receivables and direct contact with customers regarding payment of 
bills for the delivered products, there are a number of quite effective ways to 
collect receivables that allow you to return money for delivered products: 
clearing debts with a bill of exchange, offsetting operations , factoring, etc. 
Also, for hedging the risk of default, such methods are used as: direct insurance 
of receivables and the formation of reserves for doubtful debts. 
1. The provision for doubtful debts is one of the most important receivables 
management methods. The creation of a reserve in accounting since 2011 is 
mandatory as a result of changes introduced by Decree of the Ministry of 
Finance of Russia dated 24.12.2010 No. 186n to Regulation No. 34n, but the 
alternative to tax accounting is whether to create reserves for doubtful debts or 
not. Expenses for the formation of reserves for doubtful debts are regulated by 
article 266 of the Tax Code. Contributions to the allowance for doubtful debts 
relate to non-operating expenses and reduce taxable income. 
Based on the provisions of Article 266 of the Tax Code of the Russian 
Federation, the amount of the allowance for doubtful debts in tax accounting is 
determined by the inventory of receivables held at the end of the previous 
reporting (tax) period. In this case, an inventory of receivables is carried out in 
order to determine, on the basis of agreements, the timing of arrears for each 
debtor, as well as the delay in fulfillment of obligations (in days) at the end of 
the reporting period on the basis of primary documents and acts of reconciliation 
of settlements. 
Based on the inventory data, the taxpayer determines the overdue debt, 
then classifies it as bad or doubtful. If the overdue debt is recognized as bad, 
then it is covered by the created reserve, if doubtful, it should be included in the 
reserve for doubtful debts. 
The amount of the created reserve is calculated as follows: 
a) for doubtful debts with a period of occurrence of more than 90 days — 
the total amount of the debt identified based on an inventory is included in the 
amount of the created reserve 
b) for doubtful debts with a period of occurrence from 45 to 90 days 
(inclusive) — the reserve amount includes 50% of the amount identified based 
on the inventory of debt 
c) for doubtful debts with a term of occurrence up to 45 days — does not 
increase the amount of the created reserve 
Tax legislation (Clause 4, Article 266 of the Tax Code of the Russian 
Federation) limits the amount of the allowance for doubtful debts: the amount of 
the allowance for  doubtful debts cannot exceed 10% of the revenue of the 
reporting (tax) period, determined in accordance with Art. 249 of the Tax Code 
of the Russian Federation. Therefore, the calculated amount of the allowance for 
doubtful debts based on the inventory data for the periods should be compared 
with the maximum amount of the created allowance calculated on the basis of 
 
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the revenue of the reporting (tax) period. For inclusion in non-operating 
expenses, a lower value is taken. 
Paragraph 4 of Art. 266 of the Tax  Code of the Russian Federation 
established that “the reserve for doubtful debts can be used by the organization 
only to cover losses from bad debts recognized as such in the manner 
established by this article.” In other words, if a taxpayer creates a reserve for 
doubtful debts, then the costs of writing off bad debts are incurred only at the 
expense of the amount of the created reserve. 
The method under consideration is necessary for ensuring the risks of non-
payment of receivables associated with the formation of doubtful debts. In our 
opinion, the formation of reserves for doubtful debts is the most acceptable for 
Russian enterprises, as it has a number of advantages: it reduces taxable profit, 
since deductions to the reserve relate to non-operating expenses; minimizes 
losses arising from writing off bad debts. 
But in addition to the positive aspects, this method also has drawbacks: so 
if the reserve is formed in one tax period (for example, the fourth quarter of one 
year), and if in the next period (the first quarter of the next year), the amount of 
revenue is less, then the reserve should be reduced, if this amount will be 
considered as non-operating income, which will increase income tax. 
2. Accounts receivable insurance. If the working conditions of the company 
on the market require that customers be provided with deferred payment for 
shipped products, this often entails the risk of untimely refund and loss. Risks 
can be reduced by concluding a receivables insurance contract. Accounts 
receivable insurance involves insurance of the risk of losses from untimely 
return of funds by the buyer or his bankruptcy. 
The benefits of using accounts receivable insurance include increased 
financial independence of the company. In Russian and world practice, there are 
frequent cases when the bankruptcy of a large buyer entailed a series of 
bankruptcies of its suppliers, which worked on a deferred payment basis. It 
should be noted that, as a rule, it is much easier for companies that ensure their 
receivables to obtain more favorable conditions for bank loans. In this case, the 
insured receivables may serve as a pledge for the bank. 
The considered method can be effective for trading and manufacturing 
companies operating in competitive markets and not having the ability to dictate 
their terms to customers or planning to develop new market niches. 
3. Factoring. To accelerate the transfer of receivables to other forms of 
current assets of the enterprise. 
An enterprise can effectively manage accounts receivable of clients by 
attracting a factoring company. In this case, the factor bank or factor company 
themselves will check the solvency and reputation of the customers. From a 
legal point of view, factoring is a transaction that means the assignment of 
claims, from a financial and economic point of view —  financing of clients 
against their assignment of their monetary claims to debtors. The service 
 
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consists in the fact that a factoring company for a fee (in the form of a certain 
percentage of the debt amount) takes on all the work of collecting receivables. 
In fact, this is a tripartite agreement under which a factoring company partially 
pays for the goods or service to the seller immediately upon delivery, and the 
rest as debt is collected. The size of the advance payment is usually from 70 to 
90% of the delivery amount. The rest of the funds minus the Commission of the 
Factor shall be returned immediately after the payment for the delivery by the 
buyer. The buyer company does not transfer money to the supplier, but to the 
factoring company. Therefore, a factoring company helps the seller to keep most 
of the money in circulation and, accordingly, assumes all credit risks. 
Thus, the supplier gets the opportunity to plan their financial flows, 
regardless of the payment discipline of the buyers, being confident in the 
unconditional receipt of funds from the bank against the accepted shipping 
documents for deliveries with deferred payment. 
Using factoring allows the company: 
- increase the liquidity of receivables 
- eliminate cash gaps 
- ensure the risks associated with the provision of deferred payment to 
customers 
4. The establishment of credit limits is included in the receivables 
management system, being a necessary method for effective management. 
When forming a credit policy, it is necessary to determine the maximum 
allowable number of receivables both for the enterprise as a whole and for each 
counterparty (credit limit). In calculating these indicators, the company 
primarily focuses on its strategy - increasing the market share requires a larger 
credit limit than keeping its market share and accumulating free cash. At the 
same time, sufficient liquidity of the company must be maintained, and credit 
risk considered. 
Credit limits established for the company’s customers help to tightly 
control the work of the commercial service and prevent the growth of overdue 
receivables. To determine the size of credit limits for customers, the indicator of 
accounts receivable turnover is used. 
Buyer Credit Limit = Planned Sales / Expected Turnover Period. 
Since all types of current assets are at risk of losses during their formation 
and use, it is necessary to determine and minimize these losses. In this regard, 
the working capital management policy should be aimed at identifying ways to 
reduce risks  under certain current conditions. First, it will depend on the 
macroeconomic situation, and secondly, on the financial capabilities of the 
enterprise itself and the policy of generating money capital. So, with high 
inflation, there is no need to increase funds, they must be invested in the 
purchase of raw materials and materials, etc. If there is a possible risk of 
bankruptcy of customers, they should stop shipment of finished products to 
 
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them. And, of course, with the stabilization of the foreign exchange  rate, 
investments in these assets will not be profitable enough. 
Table 13 describes the main types of risks associated with the elements of 
working capital. 
Table 13.