What Are Trade Debtors?

What Are Trade Debtors?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Trade debtors, also known as accounts receivable, are customers who have purchased goods or services on credit and have yet to make their payment. These are typically recorded as an asset on the company’s balance sheet because it’s money that is owed to the business.

Related Questions

1. How are trade debtors managed?

Trade debtors are managed through credit control procedures. The processes might involve issuing invoices promptly, performing regular credit checks, setting credit limits, and following up on overdue payments.

2. What is the difference between trade debtors and creditors?

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Trade debtors refer to the customers who owe money to a company for purchases made on credit. Conversely, trade creditors are the suppliers or service providers to whom a company owes money. Both are vital aspects of managing a company’s cash flow.

3. Can a negative trade debtor balance occur?

A negative trade debtor balance is rare but can occur. It happens when a customer overpays or a payment is applied to the wrong account, creating a credit balance rather than a debit one. When it happens, it should be rectified immediately to maintain accurate records.

4. How does the aging of trade debtors work?

The aging of trade debtors involves categorizing outstanding invoices or debts according to how long they have been unpaid. This process can help businesses identify problem areas and target their collection efforts more effectively.

5. Is a high amount of trade debtors good or bad?

Having a high number of trade debtors isn’t necessarily good or bad. It depends on the context. If a company can manage it well, it can mean steady cash flow. However, a high number could also mean potential cash flow problems, especially if many accounts are overdue.