Legal Definitions - unrealized receivable

An unrealized receivable refers to a right to receive income or payment for goods or services that have been provided, but for which the actual cash payment has not yet been received. It represents an asset that has been earned but has not yet been converted into cash. This term is particularly relevant in accounting and legal contexts when assessing the value of a business or individual's assets, as it represents future income that is expected to be collected.

Here are some examples to illustrate this concept:

• Consulting Firm's Project Payment: A marketing consulting firm completes a major project for a client in June. According to their contract, the client will be invoiced at the end of June, with payment due 30 days later, in July.

  How it illustrates the term: Even though the consulting firm has fully delivered its services and earned the income in June, the actual cash payment will not be received until July. Before the payment arrives, the firm has an unrealized receivable – a legitimate claim to future income for work already done.

• Salesperson's Commission: A salesperson for a software company closes a significant deal in October. Their commission for this sale is contractually due to them on the 15th of the following month, after the client's payment has been processed and cleared.

  How it illustrates the term: The salesperson has completed the work (securing the sale) and earned the commission in October. However, the cash payment for that commission will not be in their bank account until November 15th. During this waiting period, the salesperson holds an unrealized receivable for the commission they are entitled to.

• Law Firm's Contingency Fee: A personal injury law firm represents a client on a contingency fee basis, meaning the firm only gets paid if the client wins their case or settles. The case settles in February, and the settlement funds are placed into a trust account, pending final distribution to the client and the law firm in March.

  How it illustrates the term: Once the settlement is reached, the law firm has earned its percentage of the settlement funds. However, the actual cash payment to the firm will not occur until the funds are disbursed from the trust account in March. Until that disbursement, the firm's share of the settlement is an unrealized receivable – a legally recognized right to future income for services already rendered.