Think: what are the odds your buddy Slick Steve will, in fact, pay you back the $100 he's borrowing for the weekend? Will he even remember that he borrowed the money from you? If you're worried about being paid, then by definition, you are worried about Slick Steve's default risk. That is, if you don't trust him to pay back the money, either because he can't or won't, then he carries big risk of being a deadbeat.
Default risk is a huge deal in the bond industry. And it relates to more than just corporations. Entire countries default on their bonds, and the world champion defaulter is Greece, who has had an Olympic-level performance of three defaults in the last few decades. When a country defaults on their debt to the big, fat, dumb peace-loving west, western banks usually just reissue new bonds, papering over the old bonds, and making everything cosmetically pretty.
Given that China has become the largest lender to many emerging countries, with extremely high default risk, and given that China generally backs its debt obligations with its own military, it will be interesting to see what happens when the next set of countries defaults with big loans to China.
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Finance: What are Aging Receivables/an A...70 Views
Finance a la shmoop what are aging receivables and an allowance for doubtful accounts
A lot of people don't realize this but that was the original title of Moby [Book title changes to Moby Dick]
Dick yeah all right My aching receivables that's your
balance sheet talking well wine is about the only thing that gets better with age [Wine poured into a glass]
and even it has its limits there yeah aliens go ahead and pour yourself a
glass all right when receivables a balance sheet item
that lives right here get old they - generally speaking get bad note how much
higher the probability of non collection called deadbeat-ism gets as the age of
the receivables increases well generally speaking bills that are gonna get paid
generally get paid fast or at least on time and those that don't have to be
tracked well best guesses matter in accounting so coming to an actual
predicted rational and reasonable number is a big deal and you can see that in [Man discussing receivables]
this case the spread between the legally owed money and the amount likely to be
collected is a pretty big spread well the decline hits the assets side of the
balance sheet in the form of accounts receivable here being lower and [Accounts receivable column highlighted]
eventually when a bad debt is finally recognized as a deadbeat bad debt never
to be collected and is dead dead dead well then it simply gets written off on
the income statement or well said another way it goes away as a sale that
never happened so that's aging receivables in a nutshell and yeah this [Aging receives inside a nut]
is the one time you don't need to respect the elderly [Man trips over elderly man and gives thumbs up]