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Inflation Rate vs The Value of a Receivable

Inflation can have a significant impact on a company’s accounts receivables, which are the amounts owed to the company by its customers for goods or services that have been delivered but not yet paid for.

The impact of inflation on accounts receivables depends on the terms of the sale agreement between the company and its customers. If the company has contracts with fixed prices, inflation can erode the value of the receivables over time. For example, if a company sold goods for $1,000 with payment due in 60 days and inflation is 5% per year, the value of the receivable in today’s dollars would be reduced to $952.38 after one year.

On the other hand, if the company has contracts with variable prices, such as contracts that include inflation-adjustment clauses, the impact of inflation on accounts receivables may be mitigated. In this case, the price of the goods or services sold would be adjusted for inflation, which would help to maintain the real value of the receivables.

In summary, inflation can impact a company’s accounts receivables by reducing the real value of fixed-price receivables over time, while variable-price receivables with inflation-adjustment clauses may be less affected by inflation.