Trade creditors is the balance you owe suppliers for goods and services they have invoiced and you have not yet paid. The nominal ledger holds it as one figure, the creditors control account (sometimes called purchase ledger control or accounts payable). The purchase ledger breaks it down supplier by supplier. Posting a supplier invoice credits both; paying it debits both.
Keep it to supplier invoices
The control account is reliable only if it contains supplier invoices, supplier credit notes and payments to suppliers, at amounts including VAT. Several liabilities look similar but have their own accounts:
| Owed to | Where it goes instead |
|---|---|
| HMRC for VAT, PAYE or corporation tax | VAT liability, PAYE and NIC, corporation tax accounts |
| Staff for wages or expenses | Net pay and expense claim accounts |
| A supplier for goods received but not yet invoiced | Goods received not invoiced or accruals |
| The bank for a credit card | The credit card’s own liability account |
| A director | Director’s loan account |
| A lender | A loan account for that facility |
If these are mixed in, the aged creditors report no longer agrees with the control account and nobody can tell from the balance sheet how much the business owes its suppliers.
The control account against the purchase ledger
Once a month, print the aged creditors report dated the last day of the month and compare its total to the control account balance on the trial balance. In software where every posting to the control account comes through a supplier, they will agree. A difference almost always means a journal was posted to the control account directly, or opening balances were entered differently in the nominal and purchase ledgers when the software was set up. Find it and repost it through the supplier; don’t carry a reconciling item month after month.
Reconciling a supplier statement
Agreeing the control account proves the ledgers match each other. It does not prove they match what suppliers think you owe. That comes from supplier statement reconciliation, at least for your largest and most active suppliers each month.
A builder’s merchant sends a statement showing £7,384.20 owed at 31 May. Your account for them shows £5,914.20.
| £ | |
|---|---|
| Balance per your purchase ledger | 5,914.20 |
| Add: invoice 88213 dated 30 May, not yet received or posted | 1,620.00 |
| Add: payment made 30 May, not yet on the supplier’s statement | 1,450.00 |
| Less: credit note for returned timber, on statement, not posted by you | (1,600.00) |
| Balance per supplier statement | 7,384.20 |
Each item tells you something different. The missing invoice needs chasing and posting in May if the goods arrived in May. The payment in transit will drop off naturally. The credit note should be requested and posted. An invoice on their statement for goods you never received is a dispute, not a reconciling item, and should be raised with the supplier straight away. A full method is in supplier statement reconciliation.
Suppliers in debit
A supplier account in debit means the supplier owes you. The usual causes are paying the same invoice twice, paying before the invoice was posted and then posting it to a different supplier record, or a credit note arriving after payment. Treat each one as money to recover: ask for a refund, or agree in writing to deduct it from the next invoice.
At the year end, material debit balances should be moved from creditors to other debtors in the accounts rather than left to reduce the creditors figure.
Where trade creditors appear in the accounts
Under the Companies Act formats, trade creditors are shown under creditors: amounts falling due within one year. In the rare case of supplier credit on terms longer than twelve months, the long portion goes under amounts falling due after more than one year. Accruals are not trade creditors and have their own line, accruals and deferred income.
Reviewing the aged creditors report
Beyond the totals, the aged report shows how you are managing suppliers:
- invoices well past their due date suggest a cash problem, a forgotten dispute or an invoice coded to the wrong supplier
- a supplier with only old invoices and no recent activity may have been paid under a duplicate record
- very large balances due in the next payment run feed directly into cash flow planning
Use it to plan each supplier payment run.