What is a debtor?

The definition of debtors is: customers or businesses that have received an invoice but have not yet paid it. This means you have an outstanding invoice and are still waiting to receive payment. Debtors can be a challenge if invoices are paid late. Effective debtor management ensures that you maintain control over your cash flow and prevent payment delays.

The faster your invoices are paid, the less time you need to spend on follow-ups, and the healthier your financial position remains.

Table of contents:

• What is the difference between debtors and creditors?
• What are ‘debtors’ on a balance sheet?
• How to calculate accounts receivable?
• Optimise your accounts receivable management with Payt
• Frequently asked questions

What is the difference between debtors and creditors?

Debtors and creditors are often confused with each other. The difference between the two terms is simple:

• The meaning of debtors: Customers who still need to pay your company. These are receivables.
• The meaning of creditors: Suppliers to whom your company still owes money. These are liabilities.

For example, if you have a supplier who delivers products to your company and sends an invoice, that supplier is your creditor, and you are their debtor.

What are ‘debtors’ on a balance sheet?

On a balance sheet, financial debtors are classified as current assets under accounts receivable. This is because they represent money that is expected to be received within a short period, typically within one year.

Example of a balance sheet:

How to calculate accounts receivable?

Calculating the total amount of accounts receivable is an essential part of receivables management. This is done by adding up all outstanding invoices and subtracting any payments that have already been received.

The basic formula is: accounts receivable = outstanding invoices – received payments

For example, if your company has issued £ 15,000 in invoices but has already received £ 5,000 in payments, your outstanding receivables amount to £ 10,000.

Read in this article how to get paid faster and more easier.

In addition to the total amount of accounts receivable, it is also useful to analyse how long it takes on average for invoices to be paid. This is measured using Days Sales Outstanding (DSO).

DSO provides insight into your customers’ average payment terms and helps determine whether your receivables management is effective. The lower your DSO, the faster you receive payments, resulting in a healthier cash flow.

Check out our in-depth article on how to manage your DSO.

Having a clear understanding of your outstanding receivables and DSO helps you predict when payments will be received and enables you to take action when invoices remain unpaid. This allows you to maintain control over your cash flow and reduces the risk of late payments.

Optimise your accounts receivable management with Payt

Effective accounts receivable management ensures that payments are received faster and helps prevent financial issues. A key aspect of this is monitoring Days Sales Outstanding (DSO), which provides insight into how long it takes for invoices to be paid on average.

With Payt’s automated credit management software, you can significantly streamline this process. Our software helps you get paid faster by automating payment reminders, simplifying invoice follow-ups, and improving customer communication. Plus, you can save up to 80% of your time, and invoices are paid on average 50% faster.

Find out how Payt can help you optimize your accounts receivable management today!

Frequently asked questions