What Are Trade Debtors and Trade Receivables?

This article has been checked by our team of accountants for accuracy as of November 2025.

As business owners, bookkeeping and accounting can often be the part of the role we dread the most – and terms like trade debtors and trade receivables certainly don’t help. The fact is, to all intents and purposes, many organisations out there can treat the two terms as one and the same.

Trade debtors are a completely normal part of the everyday reality of trading. Basically, when you raise an invoice for goods or services supplied, you create a trade debtor. In some instances, the term relates to the people or entities that owe you money. In other cases, people will refer to the amounts owed as being the trade debtors. In most cases, trade debtors will constitute either all of what’s outstanding at any one time or the vast majority of that.

Trade receivables means much the same thing, except your business may be owed money for something other than goods or services supplied. For example, if you loaned another business capital, that would count as a trade receivable on your balance sheet. The same could be said when you sell a capital asset and are awaiting payment.

Bookkeepers will count goods you sell as assets too, but they – and the invoices generated for selling them – get classed differently from when you sell a capital asset like machinery or a vehicle, for instance. The difference is that you hold capital assets longer-term, whereas, with other assets like items in stock, you’re expected to turn them into cash in a relatively short period.

Generally, for most businesses, the slight difference between trade debtors and trade receivables doesn’t become an issue – and many either use one or the other to mean the same thing or use the terms interchangeably without causing problems.

Trade debtors, trade receivables, and upping your invoicing game

For most of us, whether we call it trade receivables or trade debtors, the important thing is staying on top of the revenue coming into the business and the money going out. So, bearing in mind that most companies out there will be invoicing for good services, or even a bit of both, let’s concentrate on how you can make sure your trade debtors or receivables don’t turn into bad debts.

Nearly every small business out there could benefit from improving how they invoice for work or goods supplied. It’s often something that gets put off when it should be one of your highest priorities in reality. That’s because, without invoices, there can be no cash flow. To keep that aspect of your business healthy, it’s essential to have a reliable system in place for billing your clients promptly and consistently.

Taking the time to develop good habits in this area can make a massive difference to how your enterprise runs. That doesn’t just apply to improving your cash flow, either. You’ll spend far less time dealing with payment issues when you put the right system in place.

Trade debtors versus trade receivables

Not everyone in business is there because they love chasing money, doing the books, or even talking about costs. Many small business owners find this aspect the least desirable, and a lot of people run an enterprise because of a love for the work, not the bookkeeping. That’s where having standard, transparent systems in place can help you avoid much of the time it takes to administrate your business. Here are a few things you can do to get things ticking over more smoothly.

1. Be clear about payment terms

   Always start off on the right foot with new clients. It’s important to communicate clear payment terms from the off. That way, both parties will know precisely where they stand, and there can be no haggling or disagreements later. It’s helpful to have something in writing. While that can seem awkward for some business owners, the fact is, it just removes much of the potential for awkwardness in the future. Having your payment terms in writing also means you’ll have something to refer to if a problem arises.

   Be realistic about your payments terms. While it’s sometimes tempting to feel like you need to be generous in order to attract and retain customers, remember that quality products and services achieve that. Don’t set terms that make day to day trading a constant uphill battle. Give clients a bit of time to pay, but not too long. While 30-day terms are still common, many businesses now use shorter payment terms such as 7 or 14 days to improve cash flow. The key is choosing terms that support your cash cycle without discouraging customers.

2. Make time to invoice regularly, and get it right

   Without it, you can’t operate, so take the time here and there to invoice customers. Many small businesses now automate invoicing through cloud accounting platforms. Automation ensures invoices are sent immediately, reduces manual errors, and dramatically improves average payment times. Your suppliers won’t wait, and neither will your employees, so make sure to do your invoicing once a job is complete or goods get delivered.

   Take the time to make sure there are no mistakes on invoices and include more information than you think is needed rather than running the risk of confusing your customer – failing to do both is likely to lead to delays in receiving payment.

   It’s a great idea and one of the most straightforward steps you can take to improve payment times, to include your bank details on every invoice. Not every delay is down to reluctant payers, so provide everything your customer needs to pay the invoice quickly.

3. Find out who controls funds and send invoices to them

   This is another simple but highly effective way to get paid more quickly. Don’t just send the invoice to your regular contact. They’re likely a buyer, but that doesn’t mean they’re responsible for paying too. Find out who is, and cut out any extra steps in the payment process by emailing them directly.

4. Stay on top of any overdue amounts

   You’ve set clear payment terms, supplied and invoiced for goods or services on time, so you’re entitled to get paid on time too. With your system in place, you should never feel awkward about chasing payment – and in most cases, it’ll simply be an oversight. If you use accounting software, it’s easy to send an initial reminder a day or two after debts become due. After that, you’ll need to give the relevant person a call and a gentle, polite reminder.

What can you do if a customer doesn’t pay an invoice?

Even if you have to chase the odd payment (which is par for the course when running a business), it should never go too far beyond that point. So, what can you do when it becomes clear your customer just isn’t going to pay?

You’ll need to follow a specific process when this happens. Start by sending the customer a copy of your original payment terms agreement – which comes in particularly useful at this stage. Under the Late Payment of Commercial Debts Act, you are legally entitled to charge interest, compensation and reasonable recovery costs on overdue commercial invoices. Interest is generally charged at 8% above the Bank of England base rate unless a contract states otherwise.

Read More: What is Invoice Finance?

Trade debtors and trade receivables: filing a claim for an unpaid debt

If the debtor is an individual and the amount owed exceeds £5,000, you can issue a statutory demand requiring payment within 21 days. For limited companies, the insolvency threshold is £750. A statutory demand is a formal notice requesting payment within 21 days and can be used as the basis for bankruptcy (individuals) or winding-up proceedings (companies) if left unresolved.

For amounts up to £10,000, the claim will usually be handled through the County Court’s Small Claims Track.

Claims above this amount follow the fast-track or multi-track process instead, depending on value and complexity.

Keep all documentation relating to the debt, including a signed order or contract and your 7-day payment demand. You can file a claim online, and the debtor will need to pay both the debt and court costs in the event you’re successful.

Read More: Debtor Control

Xero Cloud Accounting Software for SMEs

Modern cloud accounting platforms such as Xero now include automated invoicing, payment reminders, and real-time debtor tracking as standard features. These tools bring all your invoicing information into one place, help ensure customers are billed promptly, and significantly reduce the time spent chasing late payments.

What is Xero Cloud Accounting?

As one of the country’s leading Xero accountants, we can help your business set up Xero and train you on how to use the software.

Get in touch today to find out more about how Xero can help you to further your business, or try our instant accounting quote tool and get a fee in just a few clicks.

Related: Moving From Sage To Xero