What is a receivable? Definition, types and what you can do with it

A receivable is a legal right of the creditor to a payment or other performance from the debtor — typically payment for goods supplied, services rendered, a loan made, or another due liability. In English law, a debt is a chose in action: an intangible item of property that you own, can value on your balance sheet, and can dispose of like any other asset.

That second point is the one most creditors miss. A receivable is not just an annoyance sitting in your aged-debtors ledger — it is property. You can sell it, use it as security, set it off against your own liabilities, pass it down by inheritance, or recover it from the debtor. This guide covers everything you need to know as a creditor: what a receivable is, how it arises, the different types, how to stop it from becoming worthless — and how to turn it from paper into actual money.

Definition under English law

A receivable (or "debt", or "book debt", or "chose in action") is a personal property right — it belongs to you even though you cannot physically pick it up. It arises out of a contractual or non-contractual obligation owed by one party (the debtor) to another (the creditor).

Every receivable has two sides:

The creditor — the person (an individual, sole trader, partnership, company or other entity) entitled to the payment or performance. That is you, if someone owes you money.

The debtor — the person legally bound to pay or perform. The one who owes you.

Performance is most often money (payment of an invoice, repayment of a loan), but it may also be non-monetary (delivery of goods, performance of a service). In practice, the vast majority of receivables that creditors actively manage are debt claims for money.

Ancillary entitlements include contractual interest (where agreed), statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 (for B2B debts, 8% over the Bank of England base rate, plus fixed sum compensation of £40 / £70 / £100 depending on size), and reasonable costs of recovery. These follow the debt automatically — if you assign the receivable, the right to interest and recovery costs goes with it.

How a receivable arises

Receivables arise from three principal sources:

From contract. The most common route. You enter into a sale of goods contract, a contract for services, a tenancy agreement, or a loan agreement — and the moment the other party is due to perform (typically pay), your receivable exists. The due date is normally fixed by the contract or the invoice; in the absence of agreement, payment is due on demand or within a reasonable time.

From statute or general law. Some receivables arise without any contract — for example, statutory rights of recovery, restitutionary claims (money had and received, unjust enrichment), or damages claims arising from torts and breaches of duty.

From a court order or arbitral award. A court judgment creating a payment obligation gives rise to a "judgment debt" — a receivable in favour of the judgment creditor. Once entered, the judgment debt has its own legal character and a substantially extended limitation period for enforcement compared to the original underlying claim.

In accounting terms, a receivable arises when the underlying transaction is complete — typically on delivery of goods or supply of services and the issuance of an invoice. It is recorded on the balance sheet as a current asset (or a non-current asset if longer-dated).

Types of receivable

For working purposes, four classifications matter:

By maturity:

• Current receivables — payable within 12 months. Typically trade debts arising from ordinary commerce — unpaid invoices.
• Non-current receivables — payable more than 12 months out. Typically loans, deferred consideration on larger contracts.

By security:

• Secured receivables have an asset standing behind them — a charge over land, a fixed or floating charge over company assets, a mortgage, a pledge, a personal guarantee, a deed of guarantee or indemnity. On default, the creditor can realise against the security.
• Unsecured receivables rest only on the debtor's personal covenant to pay. If things go wrong, you are at the back of the queue.

By enforceability:

• Titled (judgment) debts — debts confirmed by a court judgment, default judgment, consent order, Tomlin order, or arbitral award. These can be passed straight to enforcement (warrant of control, charging order, attachment of earnings, third party debt order, or statutory demand and insolvency proceedings).
• Untitled debts — debts not yet through court. The route to enforcement runs through pre-action correspondence, a court claim (usually Money Claim Online), and judgment.

By quality:

• Performing receivables — the debtor is solvent, paperwork is in order, collection is likely.
• Doubtful receivables — there are reasons to expect partial payment at best.
• Disputed receivables — the debtor disputes liability or quantum.
• Bad debts — recovery is realistically impossible given the debtor's circumstances.

These classifications matter because they drive the right strategy (collect, sue, sell, write off) and the realistic price at which the debt could be sold.

A receivable is an asset, not a nuisance

Most creditors think about unpaid invoices negatively — as annoyances, paperwork in a drawer, something they have to chase. That mindset costs them money.

From a legal and commercial standpoint, a receivable is a fully fledged part of your assets. You can sell it, pledge it, set it off, transfer it, leave it under your will. If you know how to handle it, it is an asset as real as money on deposit or a property — only with deferred liquidity.

If you do not know how to handle it, it degrades faster than almost any other asset class. It becomes statute-barred. The debtor restructures, moves assets, dissipates property. Key evidence goes missing. A £100,000 invoice can become a worthless piece of paper in three years.

The difference between a creditor who treats receivables as property and a creditor who lets them sit in a drawer is not a difference in the law — it is a difference in deciding to act in time.

Six things you can do with a receivable

1. Sell it

A receivable can be assigned to a third party — typically a specialist debt purchaser — for a discount on its face value. In English law this is a legal assignment under section 136 of the Law of Property Act 1925, which requires the assignment to be (a) absolute, (b) in writing, signed by the assignor, and (c) the subject of express written notice given to the debtor. Without all three, the assignment may still be valid in equity, but the assignee will have to join the original creditor in any claim — which adds friction.

The debtor's consent is not required for assignment, though notice is. Watch for anti-assignment clauses in the underlying contract: in English law, unlike Germany's § 354a HGB for B2B trade debts, there is no statutory override of a properly drafted no-assignment clause outside of specific carve-outs (such as the Business Contract Terms (Assignment of Receivables) Regulations 2018, which void no-assignment clauses in many small-business contracts entered into on or after 31 December 2018).

Typical UK market prices for receivable purchase:

• 80 – 95 % of face value for fresh, undisputed B2B invoices with a creditworthy debtor
• 30 – 60 % for older overdue debts with documentation in order
• 10 – 30 % for titled (judgment) debts that have not been successfully enforced — the existence of an unenforced CCJ signals to the market that recovery is hard
• Under 10 % for very old debts or debts against insolvent debtors

2. Collect it (or sue for it)

The orthodox route: informal reminders → letter before action (or Pre-Action Protocol letter for individual / sole-trader debtors) → court claim (typically via Money Claim Online for straightforward money claims) → judgment (usually default judgment if the debtor does not respond within 14 days) → enforcement. You can collect yourself, instruct a solicitor, or instruct a debt collection agency.

B2B has a built-in advantage. Under the Late Payment of Commercial Debts (Interest) Act 1998, statutory interest at 8% over the Bank of England base rate accrues automatically on late B2B debts, plus a fixed compensation of £40 / £70 / £100 depending on the debt size, plus reasonable recovery costs. You do not need to put this in your terms — it applies by law. Many creditors fail to claim it.

For undisputed debts above the statutory thresholds, a statutory demand is often a more effective tool than orthodox litigation — see article 3.

3. Set it off

Where you owe the debtor money and they owe you, you can set one against the other. English law recognises several types of set-off: contractual set-off (where the contract permits), legal set-off (in litigation, where both claims are liquidated and due), equitable set-off (where the claims arise out of the same transaction or are sufficiently connected), and insolvency set-off (where one party is in insolvency proceedings — operates automatically under the Insolvency Rules).

Worked example: You have invoiced a customer for £5,000. They have supplied you with materials worth £2,000. Instead of two payments, you set off — you owe £3,000 net to them, or they owe £3,000 net to you. Either way, the net position is settled.

Set-off is one of the most under-used tools in commercial debt recovery, particularly where parties have an ongoing trading relationship.

4. Use it as consideration

A receivable can be transferred as part-payment for another transaction, contributed as consideration on a share issue (subject to company-law valuation rules), or used to discharge an unrelated obligation. Useful in complex B2B deals and restructurings.

5. Charge or pledge it

A receivable can be charged as security for your own borrowing. Banks routinely take fixed and floating charges over a company's book debts. Once charged, the receivable secures the lender's facility; the underlying debtor pays as normal, but priority over the proceeds belongs to the chargeholder. Charges over book debts created by companies must generally be registered at Companies House within 21 days under Part 25 of the Companies Act 2006, or the charge becomes void against a liquidator or administrator.

6. Pass it on under your will

A receivable forms part of your estate. On death, the right to the debt passes to your personal representatives, and through them to your beneficiaries. The receivable retains its character — limitation periods continue to run, enforceability is not affected, the debtor becomes liable to your personal representatives (and, in turn, the beneficiary). Similarly, debts owed by a deceased debtor become claims against their estate and rank in the usual order of priority.

Limitation — the quiet killer

Under the Limitation Act 1980, a debt does not actually disappear when limitation expires — but the debtor acquires a complete defence to any claim, and the courts will not enforce it (it becomes "statute-barred"). For practical purposes, your asset becomes worthless overnight.

Limitation periods in England and Wales

The general rule for simple contract debts is six years from the date the cause of action accrues — typically the date the debt fell due (Limitation Act 1980, section 5). For most B2B invoices and consumer credit debts, this is the figure to remember.

Other notable periods:

• 12 years — debts created by, or arising under, a deed (section 8) — including obligations contained in a settlement deed or a deed of acknowledgment
• 12 years — recovery of land and mortgage capital (sections 15, 20)
• 6 years from the date the judgment became enforceable — under section 24, fresh enforcement action on a judgment debt generally requires court permission once six years have elapsed (though the judgment itself does not expire — a bankruptcy or winding-up petition based on an old judgment can still be issued without the court's permission)
• Scotland operates under a different statute (Prescription and Limitation (Scotland) Act 1973) with a five-year period for most debts; Northern Ireland mirrors the English position

Restarting and pausing the clock

Acknowledgment in writing or part-payment by the debtor restarts the limitation period. Under sections 29–30 of the Limitation Act 1980, if the debtor (a) makes a written acknowledgment of the debt signed by them or their agent, or (b) makes any payment in respect of the debt, the clock restarts from the date of the acknowledgment or payment. A signed email or text message can amount to acknowledgment if it sufficiently identifies the debt.

This is the single most important practical tool for managing limitation. Whenever a debtor contacts you, however casually, and discusses the debt — get something in writing. A brief confirmation in an email that "I am dealing with this" can buy you six more years.

Issuing proceedings stops the clock for the purposes of the action you have started. The claim form must be issued before limitation expires, but it can be served slightly later (within the four-month service period under CPR 7.5).

Negotiations do not generally stop the clock under English law — unlike German law (§ 203 BGB). If you are deep in negotiations as limitation approaches, you can either get an acknowledgment in writing, issue a protective claim, or get a written standstill agreement extending limitation.

Securing a receivable — prevention is cheaper than cure

Most receivable problems start before the receivable exists. A poorly drafted contract, missing payment terms, vague description of work, no security, anti-assignment clauses — these are the things creditors do not think about until something goes wrong. Then it is too late.

The principal security devices under English law:

Charge over land (mortgage or charge). The strongest form of security. On default, the secured creditor enforces against the charged property (sale, appointment of a receiver under the Law of Property Act 1925).

Personal guarantee. A third party (typically a director or company shareholder) signs up to pay if the principal debtor does not. Under section 4 of the Statute of Frauds 1677, a guarantee must be in writing and signed by the guarantor (or their authorised agent) — oral guarantees are unenforceable. Many guarantees fail because of this requirement.

Bank guarantee or performance bond. A bank or insurer agrees to pay the creditor on demand or on proof of specified events. More expensive but more reliable than a personal guarantee from a single individual.

Floating charge over the debtor's assets (companies only). A common form of corporate security; in insolvency it crystallises into a fixed charge over the assets at the date of crystallisation, subject to the rules on preferential creditors and the prescribed part for unsecured creditors.

Retention of title clause. In a sale of goods, the seller retains legal title until full payment is made. In the debtor's insolvency, this can take the goods outside the insolvent estate — provided the clause is properly drafted (so-called "Romalpa" clauses, after Aluminium Industrie Vaassen v Romalpa Aluminium [1976]).

Deed of acknowledgment / settlement deed. A debt under a deed has a 12-year limitation period (rather than 6), and a deed can include strong contractual remedies (interest at a contractually defined rate, costs indemnities, acceleration on default). A deed is not directly enforceable like a court judgment — you still need to sue on it — but the extended limitation period and the stronger contractual terms make it a substantially better starting point than a bare contract.

Bills of exchange and promissory notes. Negotiable instruments governed by the Bills of Exchange Act 1882. Where a debt is embodied in a bill or note, summary judgment is generally available — the debtor's defences are very limited.

A small change at contract stage — a personal guarantee from a director, a retention of title clause, a deed rather than a simple agreement, a charge over book debts — can save tens, hundreds, sometimes thousands of times its cost when things go wrong.

Before you lend or supply on credit — take advice

A large share of receivable problems come from things that could have been fixed in a 20-minute conversation with a solicitor before signature. Before you make a substantial loan, enter into a long-term contract, or supply a new customer on credit terms, get the contractual framework set up so your future receivable is strong from day one.

At EXRECEIVABLES, we see every day how cases look when the creditor "sorted it out informally". Most end up in court two years later with a 30% prospect of recovery. We also see, just as often, cases where one clause in the contract, one deed at the start, one piece of security would have meant the situation never escalated.

If you already have a receivable and are not sure where you stand, send it to us for a free, no-obligation review. Within two working days we will tell you what is possible — collect, sell, secure or write off.

Frequently asked questions

What is a receivable in simple terms? A receivable is your legal right to be paid (or otherwise performed) by someone. Most commonly, it is money owed to you for goods you supplied, services you provided, a loan you made, or rent you are owed. It exists as soon as the other party is bound to pay — typically when the invoice falls due.

What is the difference between a debt and a receivable? They are two sides of the same relationship. The creditor's right to payment is a "receivable" (or a "debt owed to" the creditor). The debtor's obligation is a "debt". One word, two perspectives.

When does a debt become statute-barred in the UK? Under the Limitation Act 1980, most simple contract debts (including ordinary B2B invoices) become statute-barred six years after they fell due. Debts created by deed have a 12-year period. Once statute-barred, the debt still exists technically, but the debtor has a complete defence and the courts will not enforce it. Scotland has a different regime (five years).

Can I sell a debt without the debtor's consent? Generally yes. Section 136 of the Law of Property Act 1925 sets out the requirements for a legal assignment — absolute, in writing, signed by the assignor, with express written notice to the debtor. The debtor's consent is not required, but watch for anti-assignment clauses in the underlying contract. Note the Business Contract Terms (Assignment of Receivables) Regulations 2018, which void anti-assignment clauses in many small-business contracts.

How much will I get if I sell my debt? It depends on quality, debtor solvency, documentation, and age. Fresh undisputed B2B invoices against creditworthy debtors: 80 – 95 % of face value. Older overdue debts with documentation: 30 – 60 %. Titled debts where enforcement has stalled: 10 – 30 % (lower than you might expect, because the existence of an unenforced judgment signals collection difficulty). Debts against insolvent debtors: under 10 %.

What happens to a debt when the creditor dies? The debt forms part of the estate and passes to the personal representatives, who recover it for the benefit of the beneficiaries. Limitation periods continue to run; the debtor's obligation to pay does not change. Personal representatives should give written notice of the change of creditor to the debtor before pressing for payment.

What should I do if the debtor does not pay on time? Move quickly. Send a payment reminder, then a formal letter before action (and follow the Pre-Action Protocol for Debt Claims if the debtor is an individual or sole trader). If there is no response, your options are: sue (most commonly via Money Claim Online), serve a statutory demand (where the debt is undisputed and exceeds the threshold), or sell the debt. Time is against you — limitation, debtor solvency, and asset dissipation all worsen with delay.