IN any business, either small and medium enterprises (SME) or in a large business establishment, credit sales could be a part of sales arrangement of selling goods and services to the customers to run a business because the nature of business may demand so.
We look at the credit sales and the related business record-keeping associated with it and see how SMEs can best manage debtors  who result from credit sales.
In a balance sheet, debtors may be traced to the portion of the liquid assets next to cash at bank or cash-in-hand.
Liquid assets are assets that are quickly turned into cash or are cash themselves in a business set-up.
Selling goods or services on credit entails developing accounting source document in a business circles called invoice books.
Sometimes the business may introduce tax invoice books and this may be in relationship with the tax office struck by law to collect value-added tax (VAT) on its behalf.
However, today my main area of interest is to look at how a business, no matter how small, may manage debtors which comes about by way of a business involved in credit sales.
Before I can proceed with the subject at hand, I want to describe what an invoice is.
I say so because at one time when I embarked on writing my book called ‘Business Record Keeping’, I carried out a research asking the non-financial business entrepreneurs to describe an invoice, only two out of 10 gave the correct answer.
An invoice is a source accounting document which is issued to a customer who is sold with goods or served with services on credit and is expected to pay for it at a later agreed time.
It is important to note here from a layman’s point of view that by way of a customer being served with the document called an invoice automatically becomes a debtor as a result of a debt incurred, especially if no effort is made to pay for it there and then.
To create an effective record in this area, the supplier must introduce a monthly book called a ‘Sales Day Book’.
A monthly sales day book is the book which records all credit invoices issued in the month and must give a total of all credit sales recorded in that period.
Apart from a sales day book recording total credit sales, it also identifies the individual customers to who the credit sales were directed, also known as debtors at this stage, especially if the customers are many.
I once worked as finance manager for a certain business in which I combined the role of debt collector as well and I remember chasing a debt in which I ended collecting a cheque in a conference room. This was so because the credit period agreed had elapsed and money in question was meant to pay salaries for workers as budgeted for.
Debtors if not properly managed can indicate to the business to be rich on paper while the bank account exists with no money in it at all for non collection.
It is important that debts are collected on due dates to ensure that the budget plan is followed correctly and this can only be done if proper records on debts are kept.
One day I went into an office and what struck me was the two pictures pinned to the wall.
One picture showed a fat man sitting on chair smiling and the words that accompanied the picture read sold on cash while the other picture showed a thin man with a worried face with the accompanying words reading sold on credit and never collected cash in time.
Yes if the business is conducted through credit sales and the debtors are handled without care they can wreck the business because debtors are suppose to be turned into cash on due dates
That is why it is important that credit customers are properly evaluated and their credit worthiness established before starting dealing with them.
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