Trade Debtors
25 Aug

Understanding Trade Debtors and Trade Receivables

Bookkeeping and accounting is often the aspect of being a business owner that is the most dreaded. Sitting down after your accounting year end and reviewing the accounts prepared by your accountant can be overwhelming, and terms like ‘Trade Debtor’ and ‘Trade Receivables’ don’t do anything to help out! To all intents and purposes, the terms can and often are used interchangeably.

What are Trade Debtors and Trade Receivables?

Trade debtors arise when you raise an invoice for services or goods you have supplied to a customer. In some cases you will hear the term used to describe the person or entity that owes you money, and in others the term describes the actual amount owed. Trade receivables are much the same, except your business may be owed money for something other than goods or services. For example, if you sold a capital asset but have not yet received the payment.

When preparing bookkeeping records, goods you sell are also classed as assets, usually as stock, but they are categorized separately to capital assets as you are expected to turn them into cash in a relatively short period of time. The slight difference between the two terms generally doesn’t become an issue within small businesses, and use one or the other to mean the same thing or use them interchangeably without any issue.

Let’s talk about invoicing…

Now the boring technical bit is out of the way, it is important to stay on top of the revenue coming into the business and in doing so, ensuring the trade receivables or trade debtors figure doesn’t reach levels where you start to run into cash flow problems. Pretty much every small business could benefit from improving how they invoice customers or clients, and making it a focal point of your attention should be high on your list of priorities.

Trade Debtors

It is understandable that not all business owners will enjoy chasing money, keeping the books up to date and analysing costs, because you have a business to run, and if you’re working for yourself, it’s likely because you have a passion for the work you do. This is where having efficient, simple systems in place can help you cut out much of the time it takes to keep up to date. You’ll see below a few things you can do to get going in the right direction and give your cash flow a nice improvement.

  1. Make time to invoice regularly!

Without doing so, you are hindering your businesses position to grow. After all, if a customer doesn’t get an invoice right away, then the process to getting paid won’t even start until you send one! The likelihood is, they’ll wait and wait to pay you, and who can blame them…

Make sure to get the invoice right before you send it out, and as a quick easy bonus tip, include your bank details on there and your payment times will improve in no time!

  1. Find out the best person to send the invoice to!

Another simple tip, but ask your customer who manages their accounts payable. Just because they are the person who does the buying, it doesn’t mean they also do the paying! Sending the invoice directly to the person who’ll be making the payment cuts out another roadblock to payment.

  1. Be up front about when you expect to be paid!

When taking on a new client or customer, it is important to lay down clear payment terms from the get go. Both parties will therefore understand their position, and there can be no disagreements down the line. Ensure you are realistic, and take an open-minded approach if your new customer has concerns, but don’t be overly generous just to pull new business in. Setting terms that don’t suit how your business operates can make your own day to day more difficult. 30 days is a good starting point, and widely operated by many small and medium sized businesses.

  1. Stay on top of overdue accounts!

Now you’ve set out your payment terms and sent a prompt invoice after providing your goods and services, make sure to keep on top of the customers who stray away from the agreed terms. If you use cloud accounting software, something you absolutely should be doing, you can send out reminders in seconds. If that fails, it may be time to pick up the phone!

If you are a small business, an excel spreadsheet or word document might be all you need, but transitioning to using Xero will revolutionise how your business operates and can making the stress and time spent invoicing a thing of the past.

Get in touch with our team today to find out more about how Xero can enable you to further your business, whilst freeing up hours each month!

If you would like to know more about the Accountancy Services we offer, then the easiest way to do it is to go to our website and take it from there!

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