What are Trade Debtors?

If Income is the life and soul of the party, Trade Debtors are the damp squib

  • Income shows what has been invoiced.
  • Trade Debtors shows which of these invoices haven't been paid. Essentially, who still owes you money!

It explains the difference between what you have earned on paper and what you have received in the bank.

Clearly, receiving the cash is the most important part of the process so it's important to be on top of which invoices are unpaid.

Often both Income and Trade Debtors are used to calculate "Debtor Days", the number of days it takes on average for an invoice to get paid.  However, I believe it is important to look at the Trade Debtors on a customer by customer basis rather than as a solitary figure.  

For me, reviewing who owes you money should be a key business activity, an important part of the customer relationship.  There can be many reasons why invoices are unpaid: from invoices going missing or not being sent; to the customer not being able/willing to pay.

How you decide to deal with them will depend upon the customer relationship. However, by spotting problems early you have more options available and can ensure you don't (in extreme cases) spend time and resources on a customer who is unlikely to pay.  In short, it can help to stop you being a "busy fool".