If you run a business which offers goods or services to clients, then you’ll deal with book debts on a daily basis. Every enterprise carries book debts in their balance sheet as part of their ordinary course of business – and ensuring these are paid in a timely and efficient manner is fundamental to the successful running of any organisation.
Book debts’ meaning in accounting is largely similar to that of accounts receivable, however there are differences between book debts and receivables generally. In this guide, we’ll look at exactly what book debts are, how they differ from wider receivables and what you can do when they’re not being paid consistently.
Book debts, by definition, refer to money due to a company in the ordinary course of its business. Book debts are primarily made up of sums owed for goods or services supplied or work carried out on credit. Any sum due under a loan may also be treated as a book debt. Book debts in the balance sheet are classified as assets.
On a general basis, book debts can be considered as or confined to accounts receivable i.e. the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. There have been some examples within legal frameworks of accounts receivable being different to book debts, however these differences tend to be an area of debate between varying definitions and interpretations of the two.
Book debts are typically current assets that arise from selling goods or providing a service to customers on credit. Book debts, or account receivables, are also considered trade receivables. While book debts come under the umbrella of receivables as a whole, wider receivables can also include nontrade receivables, which appear on the balance sheet as other receivables.
Examples of nontrade receivables include interest, income tax, insurance claims and receivables from employees. None of these are considered book debts, which is where the fundamental difference lies. Bad debts and doubtful debts are also not classified as book debts.
It should come as no surprise that regular and consistent realisation of book debt assets is vital to maintaining your cash flow. If you are struggling to collect outstanding book debts, or you run into administrative issues relating to book debts, there are a number of services and funding solutions available to you.
This type of insurance provides cover for the cost of reproducing records relating to book debts and chasing debtors following the loss or destruction of accounting records. Should a fire or flood destroy your accounting records, one of your priorities in resuming business quickly will be to restore your key lost records, including those of your outstanding invoices. Book debts can help cover the cost of this process, allowing you to recover without incurring additional financial strain.
If you’re seeking funding – be it for growth, to boost cash flow, combat late payments or to avoid raising equity from elsewhere – you can apply for a secured business loan in the form of asset-based lending, using the outstanding invoices that make up your book debts as collateral.
One particular type of asset-based lending is invoice financing, which is specifically tailored towards organisations looking to free up finance that’s tied up in unpaid invoices. Invoice finance can offer a major cash flow boost to businesses struggling to collect their book debts, instead providing access to funding against the debtor book, which is then taken care of and collected by the funding provider.
If you have book debts which you consider too old to chase or unrecoverable to a reasonable degree, you can utilise services to recover unpaid or late payments, typically on a no-win, no-fee basis. Book debt collection specialists should be considered a last resort for organisations with a regular client base, as chasing book debts to this extent could directly harm working relationships and potentially cause reputational damage.
Managing your book debts efficiently is vital to your success as a business. If you are struggling to access the cash tied up in your unpaid invoices and looking for a cash flow based solution, Nucleus can assist via accessible and transparent asset-based lending services, including tailored invoice financing.
We also provide a wide variety of SME funding solutions ranging from values of £3,000-£50m across several business finance products. If you’d like to know more about our asset-based lending packages or any of our other services, contact us today for a no-obligation consultation and quote.
4 August, 2022