In freelancing, 'debtors' refers to your clients who owe you money for work you've completed. This is a core concept for managing your business finances effectively.
What is Debtors?
Debtors are individuals or companies that owe you money. In your freelance business, they are your clients who have received an invoice but have not yet made payment. The total amount owed by all your clients is your 'accounts receivable'.
Why is this important?
Managing debtors is critical for your cash flow. Unpaid invoices mean you have delivered work without receiving income. This can quickly create financial strain, making it hard to cover your own business and living expenses.
How does it work?
You complete work and issue an invoice with payment terms, like 'Net 30'. Your client becomes a debtor from the invoice date until they pay. You track these outstanding amounts, often using accounting software or a simple spreadsheet, to follow up as needed.
Pros and cons
The main advantage is that offering credit can help you win and retain good clients. However, the significant downside is the risk of late or non-payment, which directly hurts your cash flow and requires time for follow-up and collections.
Conclusion
Understanding debtors is fundamental to running a financially healthy freelance business. By proactively managing your accounts receivable, you ensure your hard work translates into reliable income. Clear contracts and prompt invoicing are your best tools.
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