Credit Matters Blog


Kim Radok 17 May 2024

Over the years, I have reviewed many Debtors Ledgers. What is apparent at first is that there is often little evidence of what cash can be expected from the various balances within each ageing groups of 30, 60, 90, 120 or 150 days. For instance, often management is unaware of how much cash is going to be collected for valid invoices, and how much will not be paid.

When these numbers are later reviewed, it is often found that management did not really have the information which would clearly identify the nature of the items outstanding in the Ledger. As such, they would not understand the significance of the dollars which are collectable or not collectable, or of problems which existed within each ageing category in the Ledger.

Why are these factors important?

1          Traditionally, the Debtor’s Ledger has been considered to be a current asset of the business and is noted as such in the Balance Sheet. It was often found however on inspection, that only a portion of the dollars shown were actually an asset. The balance of other portion was made up of bad debts, unprocessed credit claims and fraudulent sales.

The problem of course as some business owners and managers explained, they could not clear the liabilities because they thought they were writing off an asset. It was then hard to explain to them that they were in fact, eliminating liabilities from their books, which if not processed would otherwise compromise the value of the dollars shown.

2          When there is no understanding of the items which make up the outstanding balances, it is extremely hard to validate the amount of cash you are likely to collect. In other words, you are unable to accurately predict the actual cash, all other things being equal, you are going to receive on a monthly basis.

As a consequence, your business will be unable to predict the amount of cash it has available to pay for ongoing needs, or to grow the business, obtain and pay off debts, etc.

3          There will be the known bad debts which will be written off at the end of a specified period. My preference is that these debts should be written off progressively as identified. If there is any chance of part of the debt being paid, it should be placed in a subsidiary debtor’s ledger. It can then be worked on separately to the main ledger and does not offer a false figure for cash budgeting or included in the current assets’ make-up.

4          Finally, but not least, there will be the known and as yet unprocessed credit claims still within the Debtors Ledger. These claims should have been processed as they were raised, and are usually held back for many reasons, most of which are not commercially valid and beneficial for the business entity.

The consequence is that customers which pride themselves on operating with a minimum of mistakes, may decide to delay payments until all their claims are processed. Alternatively, customers may be raising false claims to protect their cashflow, or to avoid paying their accounts at all. Either way, your business’s cashflow is compromised and unnecessary costs are being incurred.

Furthermore, as these claims remain unprocessed, the causes of the claims are not being investigated and identified whether they are valid, fraudulent, or are of a repeated nature which could have been stopped from reoccurring.

In conclusion, irrespective of the size or nature of your business, when it comes to reviewing the figures in the Debtors Ledger, you really do need to understand what they mean? The problems which exist if you have not taken the time and work to understand what compromises the end figures can cause a number of problems. These include a false balance of current assets, inability to correctly calculate cashflow, increase expenses and opportunities for fraud, etc.

Want to know more, contact Kim at, or 0411 649 261, or have a look at what we offer via our website at