Debtor

The word turns up in two places that seem unrelated until you notice they’re mirror images. When you invoice a customer and wait to be paid, that customer is your debtor. When you take out a loan, you become the lender’s debtor. Same word, same idea: someone who owes money to someone else.

Debtors in your own books

In Australian accounting, “debtors” is the traditional name for amounts customers owe you, and the list of them is the debtors ledger. Cloud bookkeeping software often uses the US term accounts receivable instead; they mean the same thing. The total sits on the balance sheet as a current asset.

There are two families. Trade debtors owe you for goods or services you’ve supplied. Sundry debtors owe you for something else, like a bond refund or an insurance payout. The opposite of a debtor is a creditor: a supplier, landlord, lender or the ATO waiting on you.

Why lenders care about your debtors

To a lender, a debtors ledger is two things at once.

First, it’s a health check. An aged receivables report shows how long invoices have been outstanding. Plenty of invoices over 60 or 90 days suggests either slow customers or weak collection, and either one strains cash flow. The speed of collection is measured as debtor days.

Second, it’s security. Debtor finance and invoice finance advance cash against approved invoices. Here the credit quality of your customers can matter as much as your own. A business with a patchy credit history but large, reliable customers such as government departments or listed companies can often get funded this way when an unsecured loan is hard.

Debtor profile	How an invoice financier tends to see it
Many customers, none over a fifth of the ledger	Strong: risk is spread
One customer making up most of the ledger	Concentration limit likely; less can be drawn
Invoices mostly under 60 days old	Eligible for funding
Invoices past 90 days, or owed by related companies	Usually excluded

The ATO can go to your debtors directly

Here’s one many owners don’t know about. If a business has an unpaid tax debt, the ATO can issue a garnishee notice to a third party that owes the business money, and that can include its customers. The customer is then legally required to send the ATO the money it would have paid you. It’s rare for it to come without warning, but it can wreck cash flow and customer relationships at once. If it’s happened to you, our page on ATO garnishee notices explains the next steps.

Cash stuck in a long list of unpaid invoices? Ask what your ledger could unlock.

Example: a labour hire firm in Geelong

A labour hire business has $180,000 owing across 14 clients, and payroll runs every week while clients pay in 30 to 45 days. Its bank offers an overdraft limited by the property the owner is willing to pledge. An invoice financier instead looks at the ledger: most clients are established builders and manufacturers, none above a fifth of the total, so the bulk of the current invoices qualify. The facility grows as the firm grows, which is exactly what a wages-heavy business needs. Our debtor finance vs business loan comparison covers the trade-offs.

Are your customers holding your cash?

If your debtors ledger keeps growing while the bank balance doesn’t, there’s usually a lender that can bridge the two. Give us a picture of who owes you and how fast they pay. The enquiry is quick, about a minute, and making it leaves your credit file alone. Nothing is broadcast to a crowd of funders; one person reviews your situation and phones you back. Ledger figures that match your books let us land on a suitable facility straight away.

Find out what your debtors are worth →