Receivables are the money your customers owe you; payables are the money you owe your suppliers. Managing udhaar means knowing both figures every day, limiting how much each customer can owe, and following up before a balance becomes too old to collect.
What is the difference between receivables and payables?
| Receivables | Payables | |
|---|---|---|
| Who owes whom | Customers owe you | You owe suppliers |
| Created by | Sales invoices on credit | Purchase invoices on credit |
| Reduced by | Payments received, sales returns | Payments made, purchase returns |
| Risk | Not being paid | Losing the supplier's trust |
A wholesaler lives between the two. If customers pay you in 45 days and you pay suppliers in 15, you finance the gap from your own pocket.
How should a payment be recorded?
A payment should be recorded on the day it is received, against the customer, into the account that actually got the money: cash, a bank account, or a cheque in hand. One entry then does two things: the customer's balance falls and the cash or bank balance rises.
Record the method and a reference, such as the cheque number or the Easypaisa transaction ID. When a customer says "I paid on the 12th", you can find it.
What is a credit limit and how do you set one?
A credit limit is the most you allow one customer to owe. Set it from two facts: how much he buys in a month and how regularly he pays. A common rule is one month of his purchases for a regular payer and less for a slow one.
The limit is useful only if you see it at the moment of billing. The invoice screen should show the customer's balance and limit before you add the next bill.
Which customers should you chase first?
Chase by two measures together: the size of the balance and the days since the last payment.
- Large balance, recent payment: a good customer; no action.
- Large balance, no payment for a month: call today.
- Small balance, no payment for three months: collect it or stop supplying.
A list of customers with their balance and last payment date, sorted by balance, is the single most useful page for collecting udhaar.
How do statements help collect money?
A statement helps because it removes the argument. Send each credit customer a statement at the start of the month: opening balance, bills, payments, closing balance. A customer who agrees with the statement has no reason to delay. See what a customer ledger shows.
What about advances?
An advance is a payment larger than the balance. It turns the customer's balance into a credit: you now owe him goods. The same happens when you pay a supplier in advance. Both must show clearly in the ledger so the next bill is set off against them.
How do you keep payables under control?
- Enter every purchase bill with the supplier's own bill number.
- Check the supplier's statement against your ledger each month.
- Pay from the list of what you owe, oldest first, not from memory.
In M-Tech Logistics: payments are recorded against the party and update the ledger and the cash or bank account together. Customer Outstanding and Supplier Outstanding list every balance with the last payment date; the invoice screen shows the balance and credit limit and warns when a bill would cross it. See ledgers and outstanding in the software, and the reports to check daily.