Long-term receivables

What it means

Long-term receivables are receivables due more than one year after the reporting date. Examples include long-term retention money on construction contracts, instalment sales with long repayment periods, long-term advances and certain receivables from shareholders.

They are shown in the balance sheet separately from short-term receivables because they will not bring in cash within the next year. The distinction matters for assessing liquidity: a company with large receivables may still struggle to pay its current liabilities.

Long-term loans granted may, depending on their nature, be reported as long-term financial assets instead. When preparing the financial statements, the type of receivable must therefore be assessed and classified under Slovak accounting procedures.

How it works in practice

For receivables collected in instalments, the balance is split into the part due within a year and the part due later. A repayment schedule shows how much will move from long-term to short-term receivables at the next balance sheet date.

A loan from the company to a shareholder or director is a typical long-term receivable in small limited companies. It should have a written agreement, market-rate interest and a realistic repayment plan, or it may be treated as a hidden profit distribution, especially if it is repeatedly extended.

Banks and investors adjust ratios such as the current ratio for long-term receivables. If these are wrongly shown as short-term in the balance sheet, liquidity looks better than it really is, which can lead to an unpleasant surprise.

What to watch out for

With long-term receivables, the risk of non-payment grows. They must be reviewed regularly and an allowance recorded when there is a risk. A receivable due in several years without interest also has a present value below its nominal amount.

If a receivable from a shareholder is material, it may restrict dividend payouts or raise questions in due diligence. A shareholder loan in the opposite direction, where the shareholder lends to the company, is subject to special rules when the company is in crisis.