Accounts Receivable: The Asset Nobody Sees

Ask a business owner what assets the company holds, and you will hear about the building, the equipment, the stock in the warehouse. The line that is sometimes larger than all of them tends to come up last: accounts receivable. Yet money owed to a company is property too. You cannot touch it, but you can value it, sell it, pledge it and recover it.

The simplest illustration of how this asset arises is a water utility. The service is delivered throughout the month, while payment arrives within twenty days after it ends. All that time, the utility carries its subscribers' receivables on the balance sheet — an asset that faithfully reappears every month simply because that is how settlements work. The same happens in any business: ship goods on deferred payment, complete works before getting paid — and you hold receivables.

Accounting sees an asset, a lawyer sees a claim

Receivables have a dual nature, and that is the key to valuing them. For the accountant, they are an asset on the balance sheet. For the lawyer, they are a property right: a right of claim against a debtor under a contract. That is why receivables are valued under the rules for property rights rather than for tangible things: the value is determined not by an entry in the books but by the quality of the right itself — the contract, the performance documents, the debtor's condition.

A practical conclusion follows from this dual nature: receivables sit in every balance sheet, which means they surface in virtually every valuation of a business, corporate rights or company assets. In our practice there has been no industry where this asset did not have to be analysed — from trade and manufacturing to utilities and the financial sector.

What a hryvnia of debt is worth

The main thing an owner — or a creditor considering Ukrainian counterparties — needs to grasp: the face value of a debt and its market value are different quantities. A hryvnia owed by a solvent counterparty on short payment terms is worth nearly a hryvnia. A hryvnia of overdue debt owed by a company in bankruptcy proceedings may be worth pennies — and that, too, is a fair price.

The valuer dissects each claim along several axes. Debtor solvency: is it operating, what do its accounts show, are there other creditors in the queue. Age of the debt: fresh receivables and a three-year delinquency are different assets. The documentary base: signed acts, delivery notes, reconciliations — a right of claim is worth as much as it is provable. Security and litigation prospects: a debt backed by a pledge or a suretyship is worth more than an unsecured one, and a claim with a judgment won and enforcement proceedings opened is worth more than a lawsuit still to be filed.

Portfolios are a separate discipline. When claims number in the hundreds or thousands, the valuation is built statistically: portfolio structure by maturity and debtor, historical collectability, the cost and duration of recovery. Here we draw on a large body of our own work: in 2015–2020 the company systematically valued rights of claim in the portfolios of insolvent banks for the Deposit Guarantee Fund of Ukraine — from consumer loans to corporate debt.

One more nuance surfaces regularly in due diligence: related-party receivables. Formally they are receivables like any other, but buyers and lenders view them with particular scepticism — and a correct valuation is obliged to price that scepticism in.

When the value has to be proven

The typical situations where a valuation of accounts receivable becomes mandatory or practically unavoidable are well known. Sale or assignment of a claim: the deal price must rest on something, especially when the seller is a bankruptcy estate or a state body. Litigation and enforcement: recovery is levied on a debtor's receivables, and they must be valued. Bankruptcy and liquidation: receivables enter the liquidation estate. Management tasks: writing off bad debt, impairment testing, contributing a claim to charter capital.

Clients come to us with this asset by two routes: as part of a comprehensive business valuation — and directly, with specific counterparty contracts for which the value of the claim is needed. The second route is shorter than it looks: a document list for the claim, financial information on the debtor — and the owner has a substantiated figure instead of a face value nobody has believed in for years.

Receivables truly are the asset nobody sees. Which is precisely why, more often than any other asset, they turn out to be under- or overvalued by multiples. Take a look at your balance sheet: the most interesting line may well be the one you are used to scrolling past.