What are trade creditors?
A trade creditor refers to a business or individual that extends credit to another business by providing goods or services on credit terms.
Understanding trade creditors is crucial to sound and regular business management, as unpaid debts can cause significant strain on your operations.
Trade creditors (definition)
Trade creditors are suppliers and vendors to whom you owe money for work completed, or goods delivered. This outstanding debt is usually in the form of unsettled invoices.
When a business receives goods or services from a trade creditor on credit, it incurs a current liability, known as accounts payable, representing the amount owed to the trade creditor. Your trade debtors/accounts payable will usually be recorded in your accounting software.
Effective management of trade credit is crucial for maintaining positive relationships with suppliers, avoiding legal action for unpaid debts, and ensuring a steady supply of goods and services while optimising cash flow.
What are trade debtors?
Trade debtors, on the other hand, are also known as accounts receivable. Trade debtors are the amounts of money owed to a business by its customers for goods or services that have been provided on credit.
If your business has completed work or delivered goods for another business or individual, these unpaid invoices are classified as trade debtors.
This glossary is intended for small business owners and contains definitions suited to their needs. For more comprehensive explanations, we recommend consulting an accounting or bookkeeping professional. Reckon does not offer accounting, tax, business, or legal advice.
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