When a business winds down, accounts receivable is often its most valuable remaining asset — and the one most carelessly handled. Liquidation procedures for accounts receivable are really a sequence of value-preservation decisions made under time pressure. Here’s the sequence, in the order professionals run it.
The four routes, in order of value preserved
1. Accelerated collection. Contact every debtor immediately with clear payment instructions and, where sensible, early-settlement discounts (5–15% off for payment within days). A discount beats every alternative below, because…
2. Selling / factoring the book. Receivables can be sold to a factor — typically at a meaningful discount reflecting age, concentration and documentation quality. Clean, well-papered invoices from creditworthy customers fetch the best rates; disputed or aged balances go for cents. Speed is what you’re buying.
3. Assignment for collection. A collection agency pursues the balances for a contingency fee — slower than a sale, but preserves upside on collectible accounts nobody would buy well.
4. Write-off. What survives the first three routes gets written off against the allowance for doubtful accounts, closing the ledger honestly.
The accounting mechanics
| Event | Entry |
| Settlement discount taken | Dr Cash, Dr Sales Discounts · Cr Accounts Receivable |
| Book sold to factor | Dr Cash, Dr Loss on Sale of Receivables · Cr AR |
| Final write-off | Dr Allowance for Doubtful Accounts · Cr AR |
The two rules that protect value
Speed beats percentage: receivables decay — a 90-day-old invoice from a closing business collects dramatically worse than a 30-day one, so the biggest lever is starting immediately, not negotiating hardest. Documentation is the price tag: factors and agencies price the paperwork (signed contracts, delivery proof, statements) as much as the debtor. In insolvency proceedings, note that collected AR flows through the estate’s priority order — secured creditors with AR liens first — so who runs the collection may not be who keeps it; formal insolvency has jurisdiction-specific rules a licensed practitioner governs. For the metric that predicts how this ends before it starts, see the debtor days calculator — books with low DSO liquidate well; books with high DSO were already telling you something.
FAQ
What happens to accounts receivable when a business closes? They’re collected, sold to a factor, assigned to a collection agency, or written off — usually in that order of value preserved.
How much do factors pay for receivables in liquidation? It varies widely with age, documentation and debtor quality — fresh, well-documented invoices from solid customers command the strongest rates; aged or disputed balances sell for little.
Who gets collected receivables in insolvency? They flow through the estate’s priority order — creditors with security over receivables rank first; the rules are jurisdiction-specific and practitioner-governed.
Should discounts be offered to speed collection? Usually yes — a modest early-settlement discount typically beats factoring or agency recovery on the same balance.