Legal Status of Intangibles in Accounts Receivable
Accounts receivable is a category that businesses use to record all the revenue that they have earned and have invoices or promissory notes for but have not yet collected. In other words, it is how companies keep track of the debt they are owed. Most accounts receivable are associated with a specific length of collection period (such as 30 or 60 days). The funds recorded within accounts receivable are individual to the business and can have a variety of legal meanings based on how they are used.
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Intangible Assets
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Intangible assets are items of worth that the business owns but which do not have a physical presence for the organization. Patents are a common type of intangible asset since they represent the value of ideas but do not have a tangible source of worth. However, in accounts receivable the money that the business is due counts as another type of intangible asset, an asset that will presumably be cash in the future but is for the moment an unpaid debt.
Accounting Status
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In accounts receivable intangible assets have an unusual relationship with tax laws. Companies that choose to count such assets as cash need to prove that their accounts receivable are very stable because such cash items can change the financial appearance of the company, not to mention incur different tax requirements based on the amount. Many businesses find counting such intangibles as only accounts receivable, not as actual cash, safer.
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Debt Obligation
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The intangibles backed by promissory notes, legal contract denoting debt obligations, also have a strong legal status for the company itself. The business is owed such funds according to law, and laws can aid the business in collection if necessary, which is why businesses often form partnerships with debt collection agencies to collect from unwilling customers. If necessary, contracts can be used to press for a judgment lien in court and force garnishment.
Use as Collateral
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In other cases, businesses desperate for cash may use their intangible assets in accounts receivable as collateral for lenders. Lenders must be willing to accept the risk that can come with depending on money that has not been paid yet, but if they do, this creates a different kind of obligation. If the business does not pay the loan as required, the lender can take the assets for itself.
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