Starting a new business? Get 40% off our accountancy services for 3 months! 😀

x

Our frequently asked accounting and bookkeeping questions blog series is part of our business guides and video resources.

They’re available to anyone who needs a bit of help getting to grips with accounting terms and practices, as well as providing more information about online accountancy services.

This week we’re talking about debtors and creditors, what they mean, and why they might appear in your bookkeeping.

What are debtors and creditors?

If you owe money to a person or business for goods or services that they have provided, then they are a creditor. Looking at this from the other side, a person who owes money is a debtor.

 

Online accountancy services

Get a quote and see how much you could be saving!

Get an instant quote

Why are debtors on a balance sheet?

A customer invoice counts as income at the point that it’s raised, even before it’s been paid, so you should still show them on your balance sheet. Your debtors, also known as receivables, represent those unpaid customer invoices, but they’re still considered to be income because the sale has been made.

But! It’s important that a business also looks at debtors as an aged debtor report. This shows how much money is owed, and since when.

If you’re unlikely to recover an old debt, it becomes ‘bad debt’ which may need to be written off. A business might have a very healthy looking income, but there can be problems making financial decisions based on that income if it’s not actually collected.

Why should your business keep track of its creditors?

Recording creditors (also known as payables) in your bookkeeping will help your business keep track of how much money is owed against any income.
 

 

 

In accounting terms, creditors are a ‘liability’. This is an amount that you’re liable for, and must pay as the result of a previous agreement.

A creditor might show on the company’s balance sheet as a current liability (due for payment within a year), or a long term liability (due after a year or more). This can be useful for financial planning, so that income can be put aside for future liabilities.

What do creditors and debtors mean for cashflow?

Cashflow is, quite literally, the flow of cash through your business. Ideally a business always has the funds available to pay its debts, staff and suppliers on time. Things get awkward pretty quickly if this isn’t the case!

Keeping track of your debtors is essential for making sure you get paid correctly and on time. Likewise, getting this money into the business will help you pay your own creditors within their payment terms.

Learn more about our very own Pandle software to help make it easier to keep track of your business finances. Or, to talk to one of the team about our online accounting services, call 020 3355 4047, ask for a free call back, or get an instant online quote.

About The Author

Elizabeth Hughes

A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible. Learn more about Elizabeth.

More posts by this author
guest
0 Comments
Inline Feedbacks
View all comments

Read more posts...

June 2022 Client of the Month: Manea Kella

This month we spoke to Adrian Manea, architect and director at Manea Kella, a London based RIBA Chartered architecture and interior design…

Read More

Succession Planning for Business Owners: What Comes Next?

When you own a business, it’s extremely normal to feel like you’re surviving one day to the next – ‘winging it’, as…

Read More

The Accountancy Partnership – Our Positive Reviews

Here at The Accountancy Partnership, we’re proud of our customer reviews The reviews we receive from our customers show how hard we…

Read More
Back to Blog...

Confirm Transactions

The number of monthly transactions you have entered based on your turnover seem high. A transaction is one bookkeeping entry such as a sale, purchase, payment or receipt. Are you sure this is correct?

Yes, submit my quote
No, let me change it

Please contact our sales team if you’re unsure

VAT Returns

It is unlikely you will need this service, unless you are voluntarily registered for VAT.

Are you sure this is correct?

Yes, the business is VAT registered
No, let me change it

Call us on 020 3355 4047 if you’re not sure.

Bookkeeping

You only need this service if you want us to complete the bookkeeping on your behalf.

Would you prefer to complete your own bookkeeping?

Yes
No

Call us on 020 3355 4047 if you’re not sure.