Money is the bloodline of all commercial activities. Enterprises run because they have both the outflow and inflow of cash. However, competitive markets mean that often suppliers have to offer a credit period to their clients to pay for the goods purchased. And, this trend is present from the large businesses to the tiny Kirana shops. When such is the market, nearly all businesses are creditors and debtors to some other business that affect the balance sheet of these companies. Therefore, creditors and debtors are vital to shaping an enterprise's work and hold over the market. In business transactions, the selling and buying of goods or services are of paramount importance. Individuals or organisations that offer their goods or services on a credit basis to their clients are thus, considered sundry creditors in the firm's books who avail such a credit facility.
What is sundry creditor?
Sundry creditors are people from whom a person gets goods or services on a credit basis. They are also the businesses or clients to whom a business owes money because of the credit facilities availed in the goods or services in the business's furtherance. The accounting language calls such firms, clients, parties, companies etc., Sundry Creditors.
In business, sundry creditors are liabilities as they owe a business an outstanding amount due to a specific transaction. This is based on the credit timeline agreed to between the business offering the services or goods and the business availing of the credit facility on the supply of such services or goods. Since sundry creditors are listed as a firm’s liability, they will appear on the right side of the credit side of the firm’s balance sheet. Most businesses use a separate accounts category called the accounts payable, or sundry creditors account to track payments from these transactions.
What is sundry debtor?
Sundry debtors are people to whom one offers services or goods on a credit basis and those businesses or clients from who the business is owed money because of the credit facilities availed for the furtherance of their business. The accounting language calls such firms, clients, parties, companies as Sundry Debtors. This means a business owes them money because of credit facilities on goods and services they have availed.
Sundry creditors examples
Consider the example of an enterprise, Surabhi Enterprises selling hardware on a credit basis to M/S Orion Builders.
- Let’s consider that Orion Builders buys hardware from Surabhi Enterprises worth Rs 22,000/- and the purchase was made on the 21st of January 2022.
- Surabhi Enterprises offers them a 3-month credit period.
- The payment is now due on 20th April 2022, and Orion Builders specifically agree and undertake to make payment of Rs 22,000/- on or before the 20th of April 2022.
- Here Surabhi Enterprises is the Sundry Debtor of Orion Builders, and to avail further and higher credit facilities, they need to clear this debt on time.
Who is sundry creditor/s?
M/S Orion Builders is now a sundry creditor in the books of Surabhi Enterprises. They will record this transaction in their accounts payable, sundry creditors ledger accounts book, or sundry creditors in the balance sheet.
The balance sheet of Surabhi Enterprises drawing on their ledgers and journals may look as below:
Similarly, suppose one were to look at the books of Orion Enterprises who have availed the credit. In that case, Surabhi Enterprises is a sundry debtor and will reflect in their sundry debtors' ledger. Sundry debtors are an asset to the firm, and in the books of Orion Builders, the sundry debtors or assets of the company get listed on the assets side or left side of their balance sheet under sundry debtors.
Meaning of accounts receivable or payable
- Accounts payable is the total sum of money owed by a firm or enterprise to its suppliers and is shown as a liability in its balance sheet.
- The simple meaning of accounts payable is that you owe the firm an amount of money whenever you buy services or goods from an organisation.
- If you have an arrangement with the supplier to pay later or avail of its credit facilities, then the firm will show this transaction as money owed to it in the accounts payable or sundry creditors section on the right side of its balance sheet.
- Accounts Payable and Receivable are dynamic accounts and remain so till the payment is made or received.
- Moreover, since money is still owed, the accounts receivable or payable by others is a liability to the company. Bills payable is another name for accounts payable.
The dynamic accounts payable head is significant to your business’s health. When the debtor who owes the firm money doesn’t pay on time, it may disrupt the harmony between the contracting parties. It can lead to cessation of credit facilities and loss of reputation to the debtor in the business community, and one could land up in court. A high value in the sundry creditor’s column is also bad for the firm offering credit and the latter could refuse to grant credit facilities to such a firm. Thus, the management of your bills payable or accounts payable account impacts your credibility, health in terms of cash flow and business relationships. Hence, it should be managed with skill and promptly to ensure that your business does not suffer from impediments in cash flow.
Example of Sundry creditors meaning in Tally
Consider this example. S Enterprises buys goods on 30 days credit of Rs 1,50,000 from Gunjan Traders.
- Now S Enterprises is reflected under sundry creditors and is entered in the accounts payable ledger of Gunjan Traders from the date of delivery of goods till the date S Enterprises clears the amount payable to it.
Account payable to Gunjan Traders is is a liability to S Enterprises.
Gunjan Traders is reflected in the books of S Enterprises as accounts payable and shown under sundry creditors since S Enterprises owes Gunjan Traders
What about the balance sheet of Gunjan Traders?
- S Enterprises is a sundry debtor to it and is an account receivable from it.
- It is an asset to Gunjan Traders and hence reflected in the sundry debtors or accounts receivable accounts.
- When the value of sundry debtors is very high, the crediblity of the company is affected in terms of its reputation, cash flow, etc.
Why manage outstanding payables?
Whenever goods or services are availed on a credit basis from your vendors, it is important to specify after a discussion on the agreed-upon timeline for payments. Prompt payments can avoid poor market relationships as well as help you maintain a healthy cash flow. Now, let's know how you can benefit from such payments.
- Track and record your dues: Your accounts payable ledger or sundry creditors in balance sheet gives you a complete picture of your creditors and what you owe them, plus the dates these amounts are due. Managing the outstanding payable accounts helps you oversee timely payments and schedule the time-to-time expenses of the firm. Thus, you can have a better business cash-flow and reputation in your business.
- Thrifty use of the credit period: By tracking the accounts payable, you are using the credit facilities at zero interest rates and paying the due amounts later. If payments are followed systematically, you can enjoy such credit facilities fearlessly. That is why it is essential to clearly state the credit period offered or the due date of payment in your invoices. Ensure your accounts receivable reflect a cautious credit period of, say, 30-days and mention the due dates for each party availing credit in their account ledgers to help you receive your dues early. If parties default, your cash flow is affected, and you will have hardships making payments to your suppliers. Thrifty use of credit facilities is an art that you will acquire on the job by recording and tracking not just your accounts receivable but also your accounts payable.
- Enhances business credit and reputation with your vendors: The prompt receipt of the accounts receivable ensures you have sufficient funds to make your outstanding payments. Besides prompt payments in the business community, lead to better discounts and enhanced credit facilities. Besides, the stoppage of any of these two accounts leads to glitches in your cash flow balance, just as it is bound to affect your debtors and creditors. Managing these accounts is critical to the health of your company and its market reputation. It also affects your balance sheet and the possibility of raising funds from other sources. Accounts payable and receivable are short-term assets and liabilities of your company that need to be managed efficiently. Remember, there is always a carrying cost on business credit offered and other costs on both these accounts.
Use accounting software to manage payables seamlessly
- If you purchase goods or services on credit from your vendors, you will need to track and record the transaction and amount due to your suppliers.
- Accounting software like Tally allows you to record the purchase and automatically shows the purchase amount as a credit payment due to the other party.
- When you make the payment, you need to enter the amount and the software auto-updates the other party’s account. Ledger Vouchers, Monthly summary and Group Summary reports are also easily available to help you manage your sundry debtors and sundry creditors in Tally as accounts receivable and payable seamlessly.
- When you use specific reference numbers to maintain your bills, it is easy to track the bills in the future using the option of searching the party master account bill-wise.
- Purchases can also be split into multiple bills to track the break-up of payments and help systematically account for payments and receivables.
- The outstanding payables or sundry creditors view also has details like pending amount, date due, number of days and more for any selected supplier.
- Tally provides an outstanding report when you need it so you can make your outstanding payments.
From this article, the need for a good cash flow in running the business can be understood. Sundry creditors in Tally and sundry debtors are present in all businesses balance sheets and are an accepted norm in business. Managing proper balance and paying the debt on time is essential for a business to run smoothly and maintain a proper relationship with its creditors. Tally software such as Biz Analyst can prove to be helpful in this regard. You record and track the heads of sundry creditors and debtors from your smartphone. With this app, you can also manage your business flow, do data entry, evaluate sales, and even increase the sales team's productivity.