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Trade debtors - 1

Understanding accounts series

Introduction

Many businesses trade with their customers on credit. In other words, they don't get paid at the time they hand over the goods or deliver their service. Retail businesses seldom have unpaid sales unless they operate one of those old-fashioned things called a "tab".

What does the term “trade debtors” mean?

We need to split the phrase into two parts.Trade – refers to the nature of the debt which the enterprise owns. It means that these debts have come into being because of a trading relationship or one that has been created with its customers. It doesn’t include advances of pay to employees or monies borrowed by directors or deposits for rent or similar.Debtors – seems straightforward enough. Debtors are people who owe you or your company money (generally).So, putting these two words back together, trade debtors are customers who owe your business money.

Understanding the number

In the balance sheet, trade debtors appear in the group called current assets. Trade debtors include VAT if the business is VAT-registered because the amount represents the total that the business will receive when the customers pay. The amount represents the cash that is waiting to be collected and so is usually one of the first places the business owner needs to start looking when they need to collect cash. To make the business work, you need good credit control systems to manage trade debts: it is not enough to hope that customers will pay without being reminded.

Read more in our next article

Disclaimer

The information contained within this factsheet is factual but may contain opinion and express different ways of considering the topic.No responsibility is accepted by NGM Accountants for any losses or profits foregone by acting on or refraining from acting on any information contained within this factsheet or any factsheets to which this refers.Before making any decisions concerning the accounts of your business or enterprise, you should consult a professionally qualified accountant.

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