What is AN Account Debtor?

An account debtor is a term commonly used in finance and accounting to refer to a customer or client who owes money to a business for goods or services that have been provided on credit. In the context of accounts receivable, the account debtor is the party responsible for paying the outstanding invoice. For a UK audience, understanding the role of an account debtor is important for managing credit risk and maintaining healthy cash flow.


Key Aspects of an Account Debtor:

  1. Definition:
    • An account debtor is a customer or client who has received goods or services from a business on credit and is obligated to pay the outstanding invoice within the agreed payment terms.
  2. Role in Accounts Receivable:
    • Invoicing: Once a business delivers goods or services on credit, it issues an invoice to the account debtor, specifying the amount due and the payment terms.
    • Payment Obligation: The account debtor is legally bound to pay the invoiced amount within the specified terms, which could range from 30 to 90 days or more, depending on the agreement.
    • Collections: If the account debtor fails to pay on time, the business may need to follow up with reminders or take collection actions to recover the debt.
  3. Importance of Managing Account Debtors:
    • Cash Flow Management: Effective management of account debtors is crucial for maintaining steady cash flow, which is essential for meeting operational expenses and investing in growth.
    • Credit Risk: Assessing the creditworthiness of account debtors helps in mitigating the risk of non-payment and reducing bad debts.
    • Customer Relations: Maintaining good relationships with account debtors ensures timely payments and repeat business.
  4. Credit Management Practices:
    • Credit Checks: Conducting credit checks on potential account debtors before extending credit to assess their ability to pay.
    • Payment Terms: Clearly defining payment terms and conditions in the invoice to avoid misunderstandings and disputes.
    • Monitoring: Regularly monitoring the accounts receivable aging report to track overdue invoices and identify problem accounts.
    • Collections Process: Implementing a structured collections process, including reminders, follow-ups, and, if necessary, engaging collection agencies or legal action.


A UK-based wholesale supplier sells £10,000 worth of goods to a retailer on credit. The supplier issues an invoice with payment terms of 30 days. In this scenario:

  • Wholesale Supplier: The business providing goods on credit.
  • Retailer: The account debtor responsible for paying the invoice.

The supplier needs to manage this account debtor effectively to ensure the invoice is paid on time. This involves:

  • Issuing the Invoice: Sending an invoice to the retailer specifying the £10,000 amount due within 30 days.
  • Monitoring Payment: Tracking the invoice in the accounts receivable aging report to ensure the retailer pays by the due date.
  • Follow-Up: If the retailer fails to pay within 30 days, the supplier may send reminders or initiate collection efforts.


An account debtor is a crucial component in the accounts receivable process for UK businesses. Effective management of account debtors helps maintain healthy cash flow, reduce credit risk, and ensure the financial stability of the business. By implementing robust credit management practices, businesses can improve their chances of receiving timely payments and maintaining positive relationships with their customers.