The first step in writing any receivable policy is to provide definitions of all key terms used. Include definitions for accounts receivable, account write-off and the various types of receivables.

For example, in an earlier period the company wrote off a debt of $1,500 by debiting the bad debts expense account and crediting accounts receivable.

On the financial statements, the selling company creates an account receivable on the balance sheet, notating that the actual cash is to be collected later.

Through invoice factoring, a company sells its accounts receivable to improve its working capital, which would provide the business with immediate funds that can be used to pay for company expenses.

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The Financial Accounting Standards Board is offering optional guidance on the measurement of credit losses for accounts receivable and contract assets.