Accounts receivables in banks typically arise from different types of transactions and services they provide. Here are some common causes for account receivables in banks:
- Interest and Fees: Banks earn interest on the loans and advances they provide to customers. The interest and associated fees that are earned but not yet received are recorded as account receivables.
- Loan Disbursements: When a bank disburses a loan, it expects to receive the principal amount along with interest in the future. The principal amount is also a part of accounts receivable till it is repaid.
- Trade Financing: When banks engage in trade financing, such as providing letters of credit or guarantees on behalf of their clients, they create receivables for the fees and charges that the clients owe.
- Credit Card Transactions: Banks that issue credit cards to customers create receivables for the amounts that customers charge on their cards. These receivables represent the amounts that customers owe to the bank for using the credit facility.
- Bank-Owned Leases: If a bank engages in leasing activities (e.g. vehicle leases), the bank will have receivables representing the amounts lessees are obligated to pay in the future under the terms of the leases.
- Overdraft Facilities: Banks offer overdraft facilities to their customers. When a customer uses this facility, the amount overdrawn becomes accounts receivable for the bank.
- Securities and Investments: When banks invest in securities or engage in trading activities, they might have receivables arising from dividends, interest or sales proceeds that are due but not yet received.
- Service Charges: Banks often provide services such as wealth management, consulting, or transaction processing to corporate customers. The fees and commissions related to these services are often recorded as accounts receivable.
- Interbank Transactions: When banks transact with other banks, either through lending or other agreements, they may have receivables representing amounts due from other banks.
- Foreign Exchange Transactions: Banks often engage in foreign exchange transactions. Differences in settlement dates may result in receivables due from either customers or other financial institutions involved in the trade.
- Mortgage Servicing Rights: When a bank services mortgages that are owned by other entities, it may be entitled to receive fees for the servicing. These fees are recorded as receivables.
It’s important to note that accounts receivable is an asset, representing amounts that are owed to the bank and expected to be collected in the future. Proper management of accounts receivable is crucial for banks to ensure liquidity and operational efficiency.