A trade debtor is a customer who you have invoiced for a sale of your goods or service but has not yet paid you.
An Example of a Trade Debtor
Mark runs a recruitment business and places a candidate with a Company at a fee of £2,000 plus VAT which will be paid 30 days after the candidate starts work.
The income of £2,000 will be shown as a sale but because Mark must wait for payment his balance sheet will show a trade debtor of £2,400 (£2,000 plus VAT).
Why are Trade Debtors important
Cash is the lifeline of any business – it means that bills and salaries can be paid otherwise it will simply won’t be able to continue. Regularly reviewing who owes you money is critical to your businesses survival, as well as chasing up payments from your trade debtors.