Small Business Accountants

What are Debtors?

Debtors are customers and other parties who owe money to a UK business at the balance sheet date. The most common type is trade debtors, representing unpaid sales invoices. Debtors sit under current assets on the balance sheet and affect working capital, cashflow, and the debtor-days KPI, which measures how quickly customers pay. Doubtful balances are typically reduced through a bad debt provision.

By Jordan Macey MAAT Reviewed by Noor Fiaz Updated 16 Apr 2026 1

Understanding Accountancy Term: Debtors - GoForma Small Business | UK Accountants & Tax Advisors

Key takeaways

Debtors are customers or businesses that owe money for goods or services already supplied, listed under current assets on the balance sheet.
Modern UK accounting standards such as FRS 102 use the term trade receivables instead of debtors, though both refer to the same balance.
The debtor days ratio shows how long on average customers take to pay; a lower figure means faster cash collection and better cash flow.
Bad debts that cannot be recovered can be written off as a business expense, reducing your taxable profit in the period of write-off.
A provision for doubtful debts allows you to reduce taxable profit for amounts that are uncertain to collect, without fully writing them off yet.

The term ‚Äòdebtor' refers to an individual or company that owes money, or is in debt to an individual or organisation. An example would be a customer that has purchased a product or service from your business. In the https://www.goforma.com/small-business-accounting/what-is-balance-sheet-profit-loss" target="_blank">balance sheet, debtors are listed under the current assets section.

Frequently asked questions

What is the difference between a debtor and a creditor?

A debtor owes money to your business, while a creditor is someone your business owes money to. For example, a customer who has received your invoice but not yet paid is a debtor. A supplier you have received goods from but not yet paid is a creditor. On the balance sheet, debtors appear under current assets and creditors appear under current liabilities. The distinction is simply about the direction of the obligation.

Where do debtors appear on a balance sheet?

Debtors, or trade receivables, are shown under current assets on the balance sheet. Current assets are those expected to convert into cash within twelve months. Because most invoices are due within 30 to 90 days, outstanding customer balances sit naturally in this category. If a balance is unlikely to be collected within a year, it may need reclassifying as a long-term asset, though this is uncommon for standard trade debt.

What is the debtor days ratio and how is it calculated?

The debtor days ratio measures how long on average it takes your customers to pay their invoices. The formula is: trade receivables divided by annual turnover, multiplied by 365. For example, if you have £20,000 outstanding and annual sales of £200,000, your debtor days figure is 36.5 days. A rising debtor days figure is a warning sign that customers are taking longer to settle, which can create cash flow pressure even when sales are healthy.

What is a bad debt and how is it treated for tax?

A bad debt is an amount owed to your business that you have assessed as unrecoverable. Once formally written off, you can claim it as a business expense against your taxable profits, reducing your Corporation Tax or Self Assessment bill for that period. You can also reclaim the VAT on a written-off invoice through the VAT bad debt relief scheme, provided the debt is more than six months overdue.

What is a provision for doubtful debts?

A provision for doubtful debts is an accounting adjustment that reduces the value of your trade receivables on the balance sheet to reflect amounts you are uncertain about collecting. Unlike a write-off, the debt is not removed from your records, but the provision reduces your net asset value and may reduce your taxable profit, depending on your accounting basis. Sole traders and partnerships using cash basis accounting handle this differently to those on accruals basis.

What is an aged debtor report?

An aged debtor report lists all outstanding customer invoices grouped by how long they have been overdue, typically in brackets of 0 to 30 days, 31 to 60 days, 61 to 90 days, and over 90 days. The report helps you identify which customers need chasing and spot patterns in late payment. Most accounting software such as Xero, FreeAgent, and QuickBooks generates aged debtor reports automatically, making them a practical tool for weekly credit control.

What is the difference between debtors and trade receivables?

Debtors and trade receivables refer to the same thing. Debtors is the traditional UK term used in older accounting standards, while trade receivables is the term required by FRS 102, the financial reporting standard most UK small and medium-sized companies follow. If you are preparing accounts under FRS 102 or IFRS, you will see trade receivables on the face of the balance sheet. Both terms describe money owed to your business by customers for goods or services supplied.

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