Due to the nature and structure of the sport, there is a requirement for a high capital investment. Therefore as a business, owners need capital to run their Formula One racing team or club. On a basic level, you require funds to have a team of pro mechanics, have your garage, spare parts, market leading vehicles and service centers, training, and racing tracks.

On top of that, you have to pay large sums to the drivers and spend money on promotions, merchandise, and competition entrance fee. All of these expenses can sometimes be difficult to fulfill during times of financial turmoil.

So what can you do? Let us explore.

It is the balance of money owed to a Formula One racing club or team by a purchaser of their products and services. It means that the customer of a Formula One racing club or team avails their services, but pays later in the future.

These pending invoices are known as accounts receivables. In the sports industry, you can also call them sports receivables or, in this specific case, Formula One receivables.

So a Formula One association, club, or a racing team offers a service or product to a stakeholder or business partner, on credit. However, the payment becomes due at a later date decided mutually by both parties.

For example, a Formula One racing team gave the broadcasting rights of their race to a specific broadcasting channel. The channel broadcasted the race, but the money the channel owes to the team may not become due for the next 30 to 60 days. This pending amount will be called Formula One receivables or accounts receivables.

However, these pending invoices or Formula One receivables are actually part of the assets category on the Formula One team’s balance sheet.

The reason is, accounts receivables provides value to your organization. Think of it as a future cash payment that you are going to receive against an invoice. However, do not mix it with accounts payable.

Account payable is a liability account; it represents the money that you owe to other businesses. Accounts receivables, on the other hand, is the money owed to you by others.

For example, you sent an invoice to a business partner because you showcased their logo on your Formula One team’s clothing. That business partner will enter this invoice into their accounting system under the account payable category because they owe this money to you and pay it by the due date.

On the other hand, you will enter the same invoice into your accounting system under the accounts receivables category, because it is the money someone else owes to you, and you will get the payment by the due date.

Your Formula One receivables are your asset, not a revenue account. However, according to accrual accounting rule (depending on jurisdiction), when you record an account receivables for your Formula One business, you also record it as revenue simultaneously.

If you have been in the Formula One business for a long time, you may have come across certain clients and business partners who either pay late or do not pay at all. This is known as bad debt or an uncollectible account receivables.

Formula One teams and clubs who have been in business for a while will often forecast their uncollectible accounts receivables, for the near future. It is necessary and assists them with maintaining realistic financial statements, with rational accounts receivables estimates. They do so by setting up a category known as “allowance for uncollectable accounts receivables.”