Finance

What Are Trade Debtors & Trade Receivables?

Allison S Robinson | 6 June 2022 | 2 years ago

Running a business is extremely difficult as it is, dealing with staff, customers, suppliers, and all the other day to day tasks that keep your business ticking over can be pretty stressful, never mind exhausting.

Bookkeeping and accounting are typically the aspects of our work as business owners that we fear the greatest, and the use of language such as “trade receivables” and “trade debtors” certainly does not help to soothe any worries.

In fact, many distinct organisations can, for all intents and purposes, treat the two names as being comparable with one another. This is something that can be done in a variety of contexts.

What are Trade Debtors?

Debtors from trade are a regular and accepted facet of the business world’s everyday reality. When you issue an invoice for the goods or services that you have provided, you are essentially creating a trade debtor. In some contexts, the phrase “debtors” refers to individuals or businesses that are indebted to you financially.

In some circumstances, the amounts that are due are referred to as the trade debtors by those involved. In the vast majority of instances, trade debtors will account for either the entirety of what is delinquent at any given moment or the large majority of that amount.

What are Trade Receivables?

The term “trade receivables” refers to essentially the same thing, with the exception that your company may be due money for something in addition to the goods or services it has provided. If you were to lend money to another company, for instance, the amount that is owed to you would be recorded as a trade receivable on your balance sheet. When you sell an investment asset and are waiting to be paid for it, the same thing may be said.

Bookkeepers will count the products that you sell as assets as well; but, the commodities themselves and the invoices that are issued for their sale are categorised differently than when you sell a capital asset such as a piece of machinery or a vehicle, for example.

The difference lies in the fact that you keep capital assets for a longer period of time, whereas with other assets, such as products in stock, you are expected to convert them into cash within a relatively short amount of time.

In most cases, the very little distinction that exists between trade debtors and trade receivables does not provide a problem for the overwhelming majority of commercial enterprises.

In point of fact, a significant number of these businesses use either phrase interchangeably or exclusively to refer to the same concept, and they do so without running into any problems as a result.

Trade creditors, trade receivables, and stepping up your game when it comes to invoicing

Whether we refer to them as trade receivables or trade debtors, most of us agree that the most crucial aspect of running a business is maintaining a firm grasp on both the money coming into the company and the money leaving it.

As a result, keeping in mind that the vast majority of businesses operating today will be sending out invoices for good services, or even a combination of the two, let’s focus on the ways in which you may prevent your trade debtors or receivables from developing into bad debts.

Nearly all of the smaller companies out there could stand to improve their methods of billing customers for the work they do or the goods they provide. In spite of the fact that it really ought to be one of your highest priorities, it is frequently one of the things that gets put off.

This is due to the fact that there can be no cash flow if there are no invoices. It is crucial to have a trustworthy system in place for charging your customers in a timely and regular manner in order to keep this facet of your company operating at a healthy level.

Investing some time and effort to form productive routines in this area can have a significant impact on the efficiency of the operations of your business.

Not only does this apply to increasing your available cash, but it also applies to other areas. When you have the appropriate structure in place, dealing with payment concerns will take up a far smaller portion of your time.

The difference between trade debtors and trade receivables

There are some people who pursue a career in business not because they enjoy the pursuit of wealth, maintaining financial records, or even discussing prices. This component is considered to be the least attractive by many owners of small businesses, and the majority of people who manage businesses do so because they enjoy the work itself rather than the bookkeeping. In this regard, having standardised and openly accessible procedures in place can assist you in saving a significant amount of the time required to administer your company. You can make things run more smoothly by doing the following things, which are all within your control.

Make sure everyone understands the payment terms

When dealing with new customers, it is essential to get off to a good start. It is essential to express the payment terms in a clear and concise manner from the beginning.

In this way, both parties will be aware of their exact positions, and there will be no room for any negotiation or arguments in the future. Having anything written down is useful in many situations.

Even though this might make some business owners feel awkward in the moment, the reality is that doing so actually eliminates a significant portion of the possibility that they will feel awkward in the future.

Having your payment terms written down gives you something to turn to in the event that a dispute arises between the two of you.

Consider the practicality of your terms for making payments. Remember that providing high-quality goods and services is what brings in and keeps people coming back, even though it can be tempting to believe that you need to be generous in order to bring in and keep customers. Do not establish terms that will make normal business operations a never-ending uphill battle. Give your customers some leeway with their payments, but not too much. The majority of small and medium-sized enterprises operate on a monthly basis.

Take the time to send out invoices on a consistent basis and do it accurately

You won’t be able to operate as efficiently as you should if you don’t have it, so make sure that you send out invoices to your customers at any opportunity you get. Consider this: if there is likely to be a delay of fifty days until you get paid, the clock won’t even begin ticking until you produce an invoice. Imagine how frustrating that would be. Imagine the situation in this way.

Because your customers and your employees won’t wait, you need to make absolutely sure that you send off invoices as soon as a project is finished or as soon as goods have been delivered. If you don’t, they won’t pay you.

Rather of running the risk of confusing your customer, it is better to spend the effort to make sure that there are no mistakes on the invoices and to provide more information than you believe is necessary. If you fail to accomplish one of these, you should anticipate a delay in obtaining payment.

Including your bank information on each and every invoice is not only a good idea but also one of the simplest things you can take to improve the amount of time it takes for you to be paid. It’s not always the case that slow payers are to blame, so make sure to provide your customer everything they need to settle the bill as soon as possible.

Determine who oversees the finances, and then send bills to that person

This is yet another simple option that can greatly cut down the amount of time needed to complete the payment process. You shouldn’t only send the invoice to the person who is typically your point of contact.

Try to find the person who is actually in charge of making payments and send them a copy too. relevant recipient.

Although your point of contact almost certainly made a purchase, that does not necessarily make them financially responsible for it.

It depends on the circumstances. Find out who is accountable for the payment, and once you have that information, send them an email as soon as possible to cut out any further steps in the process.

Maintain vigilance over any amounts that are past due

You have clearly communicated the terms of payment, delivered the items or rendered the services on time, and therefore have a right to receive payment on time as well.

Because of your system, you should never have to worry about feeling embarrassed while pursuing payment, and in the vast majority of cases, it will just be an oversight.

It is simple to send an initial reminder a day or two after the debts or invoices become overdue if you use accounting software because the software makes it straightforward to do so.

After that, you will need to give the appropriate individual a call and a kind and respectful nudge in the right direction.

What steps can you take if a client does not pay an invoice that was sent to them?

Even if you have to follow up on the occasional payment (which is something that is expected when running a business), it should never go much further than that point. The question that arises at this juncture is, what steps can you take when it becomes crystal clear that your customer will not pay you?

When anything like this occurs, you will need to carry out a certain procedure. Send a copy of the original payment conditions agreement or contract that outlines the payment terms to the customer as your first step.

At this point in the process, this document will prove to be especially helpful, which is why you should keep it handy. You’ll need to keep your composure and be polite, but you’ll also need to be assertive and make it abundantly clear that you won’t let the situation go away without a fight. If the debt is not paid off within a week, make it very clear that you will file a lawsuit against the other party in the court. Be sure that the date that is written on the letter can be read and use that figure as the basis for any future earnings.

Trade debtors and trade receivables: the process of making a claim for an outstanding debt

You will be required to take further action if your seven-day request is not responded to or paid for. If the sum that is owing is greater than £5,000, you have the right to send a statutory payment demand.

This is a generic demand for payment to be made within the next 21 calendar days. After the allotted time has passed, you are free to commence legal action.

Because the failure to respond to a statutory payment demand gives you the right to request to have the debtor declared bankrupt, these types of demands are typically quite effective.

A company may file a claim in the Small Claims Court if the amount at issue is less than £100,000.

Keep all of the documentation relating to the debt, including a signed order or contract as well as your demand for payment within seven days.

You can make a claim online, and in the event that you are successful, the debtor will be responsible for paying not just the debt but also the court expenses.

Summary

Starting work with a new client can be an exciting experience but the relationship can quickly turn sour if the paperwork isn’t in order.

  • Always make sure that you have a contract in place that clearly states payment terms.
  • Invoice on time and always make sure that you send it to the right person.
  • Keep in touch and be professional and polite.
  • Make sure that you clearly state what your late payment policy is and ALWAYS make sure that you stick to it.
  • Rewarding clients with a discount if they pay on time can always set a new business relationship off on the right foot.

Topic

Finance

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