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Welcome to today's
session on debtors,
sometimes referred to
as trade receivables in
the United Kingdom and
accounts receivable
in the United States.
Debtors are customers
who owe money to
a business for goods or
services supplied on credit.
Managing debtors is crucial for
any business because it
directly impacts cash
flow and liquidity.
When too much money remains
tied up in unpaid invoices,
the business may find
itself unable to
pay its own bills or
invest in growth.
Understanding how to control and
value debtors helps reduce
the risk of bad debts and
improves overall
financial health.
When businesses offer
credit to customers,
they do so in the hope
of increasing sales.
But this approach
carries several risks.
One obvious risk is
that some customers may
delay payment or worse
may never pay at all,
creating what we call bad debts.
Business owners must balance
the potential to attract
more customers with
the risks of stretching
their liquidity and possibly
encountering cash shortages.
Effective management of debtors
means monitoring credit terms,
ensuring customers meet
their obligations,
and having a clear process in
place to handle late
payments and bad debts.
Businesses rely on
strong internal controls
to manage debtors and
reduce potential losses.
This begins with careful vetting
before extending credit,
reviewing bank or
trade references,
analyzing financial
statements, and
consulting credit agencies for
a borrower's credit score.
Once a customer is approved,
terms should be stated
clearly on invoices,
including due dates, any
early payment discounts,
