As a business owner, you will have multiple responsibilities, including securing the necessary financial support and ensuring proper cash flow at all times. An organization can continue to function because of a consistent inflow and outflow of cash, but that is not all. Due to the market conditions and to manage sudden requirements, businesses must handle credit periods. This means the business may need to acquire raw materials on credit or supply manufactured goods on credit.
It may seem that only small businesses are prone to such decisions, but that is not entirely true. Businesses of all sizes take on the role of a creditor and debtor at one point or another, influencing the balance sheet for those transactions.
Hence, it is natural that both creditors and debtors will have considerable influence in shaping an organization’s functioning and hold over the market. Selling and buying are the primary goals of every business, but it is not always possible to pay immediately, hence, the need for dealing in credit. It’s not a bad thing, especially when you keep track of every transaction and the payment is made, albeit at a later date.
This is the situation when sundry creditors and debtors terms come into use. We will be focusing on these terms now. A sundry creditor is a business or individual from whom a business purchases goods or services on a credit basis. Likewise, sundry debtors are people or businesses who are sold goods or services on a credit basis by your business. This means they owe your business money because credit facilities are used to further the business. This is also the term used in the accounting language.
It may seem that having sundry debtors may not be wise for a business, but that is not entirely true. Notwithstanding what you think or assume, every aspect of a business is crucial and has its functions within the organization.
The question now is whether these debtors can be considered assets for the business or not. They are considered assets because they owe the business money or goods. Initially, when the debtor is being given the goods or services, it may not seem so, but when you are getting paid for the products or services, they will prove to be assets.
In a business, it’s every aspect, and contributor is important. A debtor, despite making purchases in credit, helps the business continue to function. Whether you are selling products or services, if sales do not happen, how can the business process continue? Though the items are sold on credit, they help the business continue, and when the payment happens, it brings in a necessary cash flow, which can help in several ways, including offering much-needed financial stability. Hence, such debtors are crucial for every business and its sustenance.
When it comes to accounting rules, there are many, but among them, three are considered as golden and are followed religiously by every organization and accountant. These rules are:
1. Debit the receiver, credit the giver
2. Debit what comes in, credit what goes out
3. Debit all expenses and losses and credit all incomes and gains
From these rules, it is clear that keeping track of every transaction and getting them properly noted is necessary. Having debtors means you have quite a bit of money tied to your products or services. These clients will pay the money, but as the payment will happen at a later date, remembering them is not a wise choice.
Jotting them down in your account book and balance sheet will ensure you remember the debtor and the amount of debt, and that will help maintain your account book properly. In short, the whole process will only strengthen your business’s finances further. Hence, you should be careful about the sundry debtors and all their payments.