Accounts Receivable

Accounts receivable is money customers owe a business for goods or services already delivered. For a rental, receivables are rent that has been charged but not paid. A large or growing receivables balance means the NOI on paper is not turning into cash.

On an accrual statement, rent counts as income in the month it is due, whether or not the tenant pays. A building could show strong NOI while its receivables climb every month. Ask for an aged receivables report during due diligence, which sorts balances by how long they have been unpaid.

Old receivables usually end up as bad debt. When you calculate NOI to buy a property, treat balances more than a couple of months old as uncollectable and raise the vacancy and credit loss figure to match.