A debtor is a person or organisation that owes a debt to another, usually a supplier or lender. Simply put, if you have purchased a product or service without paying immediately, you are considered a debtor. This means you still owe money to the seller. For companies, it is important to keep track of which customers have outstanding payments, as this has a direct impact on their cash flow. So managing accounts receivable is essential for healthy business operations. Companies that sell a lot on account often pay extra attention to setting up and monitoring payment terms to ensure that debtors pay their bills on time.
Origins
The concept of the debtor goes back to the origins of modern trade, when credit systems became necessary to facilitate trade. In ancient times, people lent goods or money to others with the expectation that they would get it back. More structured systems of credit were developed in the Middle Ages, when traders and banks began keeping track of debts and balances. This eventually led to today’s accounting systems in which debtors and creditors are clearly distinguished. The term ‘debtor’ was formally introduced by early economists and accountants to provide clarity in financial reports.
How does the debtor system work?
A debtor system works on a credit basis. When a customer buys a product or service on account, he becomes a debtor. This means he has to pay within a certain period of time. Companies usually manage their debtors through automated systems that help send invoices and track payments. The main steps in the debtor system are:
- Send invoice – After a sale, the customer receives an invoice.
- Set payment deadline – A deadline is given for payment, e.g. 30 days.
- Payment received – The customer pays the invoice within the agreed deadline.
- Start collection process – If payment is not forthcoming, the company can start a collection process.
This process is crucial for ensuring a company’s financial health.
Applying debtor management
Implementing good accounts receivable management in your organisation is essential for a sound financial foundation. This starts with drafting clear payment terms when entering into a sale. Make sure you agree on payment terms, payment methods and any penalties for late payments prior to a transaction. By communicating this clearly, customers will know exactly what is expected of them. You might also consider introducing an accounts receivable management system. This kind of software helps you send invoices automatically, monitor payments and quickly detect any overdue payments. This way, you keep a grip on your revenues and avoid cash flow problems.
Practical implications of debtor management
Managing accounts receivable properly has several practical benefits, but there are also some implications to consider. A structured accounts receivable process can ease the administrative burden within your organisation, as you can track your payments efficiently. However, a disadvantage of selling on credit is that the risk of non-payment increases. Therefore, you need to have an effective collection process behind you. Think, for instance, of using a collection agency or drawing up strict terms and conditions for long-term outstanding invoices. In addition, a customer relationship can come under pressure if you act too strictly on overdue payments. So it is important to strike a balance between customer-friendliness and business firmness.
Laws and regulations
There are various laws and regulations governing the handling of debtors. In the Netherlands, debtor management is regulated by the Civil Code, which gives rules on payment terms and collection costs, among other things. For companies, for instance, a statutory payment term of 30 days applies among themselves, unless otherwise agreed. For consumers, there is a different regulation, where a longer term can be applied, depending on the situation. Furthermore, there are strict rules regarding the collection process, such as the obligation to send a reminder before additional costs may be charged. It is also important to comply with the General Data Protection Regulation (AVG), especially when collecting and storing debtors’ personal data.
Recent developments
In recent years, several developments have changed debtor management. Digitalisation plays a major role in this. More and more companies are using advanced software to automate the debtor process. Think of systems that automatically send reminders and analyse payment behaviour. Another important trend is the rise of artificial intelligence (AI). Through AI, companies can assess payment risk more accurately and proactively respond to potential payment delays. We also see companies increasingly switching to electronic invoicing (e-invoicing), which makes sending and processing invoices faster and more efficient. These innovations help companies better manage their cash flow and mitigate risks.
What to look out for in debtor management
There are several aspects you need to pay extra attention to when managing your debtors. First of all, it is important to have a clear credit policy. Determine the criteria for granting credit in advance so that you do not run any unnecessary risk. It is also important to set payment terms properly and communicate them consistently to your customers. Be clear about the consequences of late payment, such as collection costs or interest. It is also wise to regularly analyse your debtor portfolio. Find out which customers pay late structurally and adjust your terms or collection process accordingly. It prevents you from falling behind and helps you spot problems early.
The role of TriFact365
TriFact365 can play a valuable role in optimising your accounts receivable management. This cloud-based software automates many processes, such as processing purchase invoices, sales invoices and receipts. This not only saves time, but also ensures that the debtor process runs more smoothly. Automation allows you to work more efficiently and better control your cash flow. TriFact365 reduces the risk of human error and helps you take quick action when needed.
