Assume you have a customer who has a receivables balance of $2M that who would like to pay off that amount with shares of stock in their company instead of cash. Are there any technical issues or problems with doing that type of transaction? Is there a precedence example anyone can refer to that can be pointed to that would demonstrate this being okay? Any help is much appreciated
Collect Stock Instead of Cash to Pay off Accounts Recievable
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DrStrangeLove
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It might make it hard to pay the bills, since converting A/R to cash is a primary way to get cash in the door. Whether it's permitted is almost certainly a question of the jurisdiction where this is happening. But absent any particular restriction or regulation prohibiting it, sure, you can settle a trade credit debt with property instead of with cash.
Having said that, is it a good idea to trade the stock for the receivables? I'd suggest you make sure the stock is worth having and isn't just glorified paper towels, and that the market for that stock is liquid enough that you'll be able to sell it for a reasonable price if you need the cash. Just because you can, that doesn't make it a good idea--caveat emptor, RNT, YMMV, and all that.
Having said that, is it a good idea to trade the stock for the receivables? I'd suggest you make sure the stock is worth having and isn't just glorified paper towels, and that the market for that stock is liquid enough that you'll be able to sell it for a reasonable price if you need the cash. Just because you can, that doesn't make it a good idea--caveat emptor, RNT, YMMV, and all that.
Thank you for your reply. Yes, it's of course understood that this can be done purely from an accounting perspective as well as some of your other notes. My question was purely in regards to any issues from a law, regulatory, or accounting rule perspective (sorry, not sure how to word it other than that). Also, if there was a public example of a company doing this to be used as precedence .
DrStrangeLove
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For a legal opinion, you should seek a lawyer. For a regulatory opinion/ruling, you should seek the appropriate regulator and/or lawyer. Since this is an accounting forum, the best you'll get here is an accounting opinion. Accounting rules can't prohibit transactions. They might not describe how to recognize/measure or derecognize them, but that's all. As for public examples of companies' doing this, Google would know better. Sorry.