Receivables, payables and contact records: making money is not the same as having money

Hook

Boss, have you had this happen: the statements say you made money this year, then you look at the bank account and there is nothing there. Where did the money go? Half of it is in your customers' pockets, and the other half you might not be able to account for yourself — who owes you, who you owe, how much, and for how long. Today we take on receivables and payables, starting from the layer underneath them: contact management.

Contacts: one account each

Managing receivables and payables does not start with chasing. It starts with a record. Every customer and every supplier needs a complete name card first: full registered name, registration number, the tax details needed for e-Invoice, the credit terms in days, and who to contact. Get the details in and nothing downstream goes crooked. Then, one account each. The ledger holds one total, called the control account — when the statement tells you "customers owe me three hundred thousand", that is it. But who owes the three hundred thousand? For that you read the subsidiary ledger, each customer's own page: which invoices, issued when, how much still outstanding. Sort that detail by how long it has been outstanding and you have the ageing report — thirty days, sixty days, over ninety days, separated at a glance. The control account shows health, the detail lets you chase, the ageing sets the order. Three layers, and you need all three. While we are here, one common question: when you record an expense, do you record it against the supplier or against the account code? Both dimensions, always. The supplier account manages who you owe; the account code manages what it was spent on — the table of contents from the last lesson. One transaction, two labels, and neither replaces the other.

Three moves on receivables

Three moves. One, invoice fast — the day the goods are delivered or the job is finished, raise the invoice. Until you invoice, the customer's credit period has not even started running. Two, chase closely — read the ageing once a month, and chase within the week anything that is past due. Three, oldest first — the older a debt, the harder it is to collect. New debts tend to come back by themselves. Old ones do not.

The document side of payables

On the payables side, the craft is in the documents. A cash bill is settled on the spot — the expense and the payment fall on the same day, simple. A credit bill is recorded first and paid later, and three things matter. One, the bill must be in the company's name, not yours. Two, record it by the date on the bill, not the date you pay — goods used this month belong to this month's expenses even if you settle next month. Three, when you pay, match it back to that bill; not matching is the single easiest way to pay twice. When the supplier's statement arrives at month end, reconcile before you pay. And a transfer with no bill behind it? In the books it is simply a question mark. The money left, the expense cannot be recorded, and until the document is recovered it can only sit there. Hence the rule: document first, payment second. And keep the receipt the supplier gives you after payment too — the bill proves you owed it, the receipt proves you paid it, two documents with two purposes. Three more that get confused. Accounts payable — the bill has arrived, not yet paid. Accruals — you have used it but the bill has not arrived, the month-end electricity for instance: estimate it, record it, and match it when the bill comes. Prepayments — you have paid but not yet used it, a year of insurance paid in one go for example. That is not an expense, it is an asset, released month by month. Remember it in one line: it turns on the order of three things — used it yet, billed yet, paid yet.

Money that did not come out of the company account

Now the messiest area: the money did not come out of the company account. A staff member fronts money for the company — travel, materials, entertaining. How is that recorded? Remember one line: the company owes the staff member. A staff advance is a liability to the company, not an asset. Plenty of people get that backwards. The expense goes to its proper account code as usual, and the other side sits in "staff reimbursements payable" until it is settled. Reimbursements can be paid together with the payroll run for convenience — but they must be listed separately. A reimbursement is money being returned, not salary. It is best to have a written claims policy: what can be claimed, the cap per category, who approves. Written down, the staff are comfortable and the accounts stay clean. A director advance works the same way through the director's account: money the company owes the director is due to director, a liability. The reverse — the director has taken money from the company and not returned it — is due from director, an asset. That one is the dangerous one, as the third lesson covered: leave it sitting there long enough and both the tax side and company law will come asking.

To close

So: build the records first, one account each. The control account shows health, the detail lets you chase, the ageing sets the order. Document before payment, and money that was fronted must clearly show who is owed. Remember this line: profit is an opinion, cash is a fact. Manage receivables well and the money comes back; manage payables well and the money does not leak out. I am LTT, helping SME bosses get their accounts straight. Follow us, and see you next time.