Receivables build up whenever you sell on credit, which covers most sales between businesses. Each unpaid invoice is one receivable, and the customer accounts that hold them make up your sales ledger, as UK finance teams call it. The balance turns into cash only when customers pay, so until then it ties up working capital.
UK businesses use several names for the same balance. Debtors and trade debtors come from the Companies Act balance sheet formats used in UK GAAP accounts, trade receivables is the IFRS term, and accounts receivable is the US name that many accounting systems also use.
Accounts receivable on the balance sheet
Accounts receivable is an asset, because it is money you have a right to collect. IAS 1 lists trade and other receivables as a line item on the balance sheet and treats an asset as current when you expect to realize it within your normal operating cycle or within 12 months, which covers almost all trade receivables. Under IFRS 15, a receivable is a right to payment that depends only on the passage of time. If payment still depends on something else, such as finishing the rest of a contract, the amount is a contract asset instead.
The statutory balance sheet formats for Companies Act accounts list trade debtors under debtors in current assets, separately from amounts owed by group undertakings, other debtors and prepayments. Any amount falling due after more than one year has to be shown separately. Receivables are reported after deducting the allowance for doubtful accounts, which UK accounts often call a bad debt provision.
How accounts receivable is recorded
Example. On 3 March you deliver goods and invoice the customer £10,000 plus VAT at 20%, so the invoice is for £10,000 + £2,000 = £12,000, payable in 30 days. You debit trade debtors with £12,000, credit sales with £10,000 and credit the VAT account with £2,000. When the customer pays on 2 April, you debit the bank account and credit trade debtors with £12,000, and the receivable is cleared.
Receivables include VAT while sales do not, so here £12,000 of debtors stands against £10,000 of sales. Adjust for that before you compare the two, for example when you work out debtor days.
Over a month, new invoices add to the balance, while payments, credit notes and write-offs reduce it. The table shows an illustrative month.
| Movement in March | Amount |
|---|---|
| Trade debtors on 1 March | £480,000 |
| Plus invoices issued, including VAT | £1,260,000 |
| Less payments received | £1,190,000 |
| Less credit notes issued | £18,000 |
| Less bad debts written off | £6,000 |
| Trade debtors on 31 March | £526,000 |
The closing balance is £480,000 + £1,260,000 minus £1,190,000, £18,000 and £6,000, which is £526,000. It should agree with the total of the customer accounts in your sales ledger and with the total of your aged debtors report.
Accounts receivable vs accounts payable
The same invoice is a receivable for the seller and a payable for the buyer. Accounts payable is the money you owe your suppliers, and it sits in current liabilities.
| Feature | Accounts receivable | Accounts payable |
|---|---|---|
| Who owes whom | Customers owe you | You owe suppliers |
| UK names | Trade debtors, trade receivables | Trade creditors, trade payables |
| Balance sheet | Current asset | Current liability |
| Ledger | Sales ledger | Purchase ledger |
| Speed measure | DSO or debtor days | DPO or creditor days |
How to manage accounts receivable
Managing receivables is the second half of the order to cash process, from the invoice to the recorded payment. In the UK this work is usually called credit control.
- Agree terms before you sell. Check new customers, set a credit limit and put the payment terms in writing.
- Invoice promptly and accurately. Send the invoice on the day you deliver, with the purchase order number and the right contact.
- Chase on a schedule. Remind customers before the due date, follow up within days after it and escalate on a set timeline.
- Apply payments quickly. Match each receipt to its invoices so paid invoices leave your reports. A payment you cannot match stays as unapplied cash until you do.
- Provide for bad debts. Write off invoices you cannot collect and keep the allowance in line with the age of the balance.
A spreadsheet can track a few dozen invoices. Once volume grows it falls behind, as explained in why collections in Excel break as you grow.
Sunbay connects to your ERP or accounting system and CRM and follows every open invoice in your receivables. It sends reminders by email and SMS, makes AI voice calls, issues interest notes and demand letters and keeps each customer reply and agreement next to the invoice. It matches incoming payments using ERP data, predicts which invoices will be paid late and shows every invoice and payment with its status, so you can see which balances are current and which are overdue.
Frequently asked questions
Is accounts receivable an asset?
Yes. It is a current asset, because you expect to collect it within a year or within your normal operating cycle. It is reported after deducting an allowance for invoices you do not expect to collect.
Is accounts receivable a debit or a credit?
It is a debit balance. An invoice debits accounts receivable, and a payment, credit note or write-off credits it. A credit balance on a customer account usually means an overpayment or a payment not yet matched to invoices.
Are trade receivables the same as accounts receivable?
In practice, yes. Trade receivables is the IFRS and UK term for amounts customers owe for goods and services, and accounts receivable is the usual US term. Other receivables, such as tax refunds or loans to staff, are reported separately.
What is the difference between accounts receivable and revenue?
Revenue is what you earn from sales in a period, and it appears in the profit and loss account. Accounts receivable is the part of your sales, including VAT, that customers have not paid yet, and it appears on the balance sheet.
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