A note from Sary

Receivables are promises of payment you've accepted from others. There's a catch: receivables don't translate into cash until the promise is fulfilled. Many businesses have closed with millions of dollars of "sales" on the books. Debt is a promise you make to pay someone at a later date. Debt is attractive because you can benefit from a purchase now while holding on to your cash until later. The later you pay, the more cash you have at your disposal. Debt can be useful, but there's also a catch: debts cost additional money in the form of interest. Very often, you'll also have to pay back a portion of your debt over time, which is called "debt service," which you can treat as another type of expense. If you can't cover your debt service, you're in trouble.

Sary The Personal MBA, page 197 · November 3, 2023 Save to shelf
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