Debtors in accounting: definition, booking and open items
Debtors are people or companies that still owe a payment for goods or services they've already received. That's why they appear in your accounts as receivables on the assets side of the balance sheet, and why their open items need to be monitored continuously.
What are accounts receivable (debtors)?
Debtors are individuals or companies who have yet to pay for goods or services already received, and therefore appear in your accounting as receivables on the assets side of the balance sheet. Whoever delivers goods or provides services before money is received acquires a claim against the debtor. Under Art. 959a of the Swiss Code of Obligations (CO), this claim appears as trade receivables under the current assets on the balance sheet, i.e. on the assets side. The term «debtor» derives from the Latin debere (to owe): the debtor owes you money.
Financial accounting tracks these claims in the accounts receivable account, designated as Account 1100 «Trade receivables» in the Swiss SME chart of accounts. Larger businesses also maintain a debtor sub-ledger per customer, the total of which must match Account 1100. This ensures financial accounting always retains an overview of outstanding amounts. For self-employed individuals just starting to issue invoices, this connection is essential: every invoice issued that remains unpaid continues to exist as a debtor item on the balance sheet until the money is actually received.
Creditors (accounts payable) represent the exact opposite: they are companies or individuals to whom you owe money, appearing as trade payables (Account 2000) on the liabilities side of the balance sheet. Distinguishing between them is crucial when starting with the basics of accounting, because confusing debtors and creditors leads to systematically booking on the wrong side.
Debtors vs. creditors at a glance:
Debtor: owes you money, receivable on the assets side
Creditor: you owe money, payable on the liabilities side
Debtor is created when invoicing customers
Creditor is created upon receiving an invoice from a supplier
How are debtors booked?
Because debtors represent a balance sheet position involving a specific booking entry, every invoice issued is recorded immediately: the accounts receivable account is debited, and the revenue account is credited. If the invoice includes VAT (standard rate 8.1% since 1 January 2024), the VAT amount is booked separately to the «VAT owed» account.
The booking logic follows the core principle of double-entry bookkeeping: every transaction appears in two accounts simultaneously. Separating the net amount and the tax portion applies to businesses that account using the effective method; they need the tax portion per invoice for their VAT reporting with the Federal Tax Administration (FTA). Those who settle using net tax rates or flat tax rates book the gross amount as revenue and calculate the VAT owed as a flat rate on their turnover.
Transaction | Debit | Credit | Example amount |
|---|---|---|---|
Issuing an invoice (net amount) | 1100 Accounts receivable | 3000 Revenue | CHF 1’000 |
VAT portion on invoice | 1100 Accounts receivable | 2200 VAT owed | CHF 81 |
Incoming payment | 1020 Bank | 1100 Accounts receivable | CHF 1’081 |
As soon as the payment is received, the bank account is debited and the accounts receivable account is credited, thereby clearing the open item. The clearing entry brings the item to zero, completing the process. Smaller businesses using open-item accounting do not record invoices immediately, but only at the time of incoming payment; the debit/credit principle remains the same. On the balance sheet date, however, they must also record any remaining open invoices as debtors to ensure the balance sheet is complete.
Once you have internalised these journal entries, you will quickly realise that the accounts receivable account is always debited when a new claim arises, and always credited when it is settled.
In practice, this means: issuing ten invoices per month results in ten debtor items in your financial accounting that remain open until each payment arrives and the clearing entry is made. If an entry is missing, the balance sheet reflects an incorrect debtor balance, and the list of open items is no longer complete. This is precisely why the seamless recording of every issued invoice is not a formality, but the foundation of a reliable liquidity overview.
What are open items and how do you keep track of them?
An open item arises as soon as you issue an invoice and payment is still pending; the open-items list shows you at any time which claims are still outstanding. Specifically, an open item is an issued invoice that has not yet been matched with an incoming payment. Debtor accounting relies on this list being complete and up to date.
The open-items list details all unpaid invoices with amount, due date, and debtor. It is the central management tool for accounts receivable administration. Regularly checking this list allows you to spot invoices that have exceeded their payment term early, enabling prompt action before liquidity issues arise.
Open debtor items strain a company’s liquidity, even if the revenue has already been booked in financial accounting, because the cash has not yet been received. While the balance sheet reflects a receivable as an asset, the bank account only increases once payment arrives. Anyone who neglects payment terms and dunning risks having to pay their own supplier invoices and wages before customer payments come in.
What an open-items list contains:
Invoice number and invoice date
Debtor's name
Invoice amount (gross incl. VAT)
Due date (invoice date plus agreed payment term)
Number of days overdue
The open-items list should be reconciled weekly with bank statements so that no incoming payment goes unnoticed and no open item remains longer than necessary. With a manageable invoice volume, this reconciliation often takes only a few minutes, yet it protects against liquidity bottlenecks that occur when receivables lie dormant on the asset side while running costs become due. Conducting this reconciliation consistently each week provides a reliable foundation for liquidity planning in the coming weeks.
Another advantage of maintaining an accurate open-items list lies in dunning: seeing at a glance which invoice is overdue by how many days allows you to start the dunning process without prior research. Lacking this overview often leads to payment reminders being sent too late, further delaying incoming payments and placing additional pressure on liquidity.
What happens with open debtor items after the payment term expires?
If an open item remains unpaid after the payment term has expired, the debtor falls into payment default. Art. 102 CO governs when this default occurs: without an agreed payment date, only after a payment reminder (dunning); with a contractually agreed fixed due date, automatically upon expiry of the deadline. Crucially: printing «payable within 30 days» unilaterally on an invoice does not automatically count as an agreed fixed due date. To establish automatic default, anchor the payment term in the contract, quote, or GTCs. Once in default, default interest of 5% per annum is payable (Art. 104 CO), unless agreed otherwise.
In practice, a three-stage dunning process has become standard. It is not legally required: to initiate debt enforcement (Betreibung), a due claim legally suffices, and a payment reminder is not mandatory. However, without an agreed fixed due date, a reminder is necessary to trigger default and default interest. The three stages help preserve the customer relationship and escalate gradually up to initiating debt collection proceedings with the debt collection office (Betreibungsamt).
Dunning Stage 1: Payment reminder
Timing: Immediately after the payment term expires, typically allowing a grace period of 5 to 10 days
Content: Friendly reminder regarding the open invoice, repeating the amount and due date, without blame
Next step: Set a new payment term (e.g. 10 days); if payment is still not received, Stage 2 follows
Dunning Stage 2: First formal dunning letter
Timing: After expiry of the new payment term set in the payment reminder
Content: Formal notification of payment default pursuant to Art. 102 CO, specific payment deadline, reference to default interest and potential consequences
Next step: Set another payment term (e.g. 10 days); if payment is not received, Stage 3 follows
Dunning Stage 3: Final dunning letter
Timing: After expiry of the payment term set in the first dunning letter
Content: Notice of imminent debt enforcement proceedings at the debt collection office, final payment term (e.g. 5 days), sent in writing
Next step: If payment is not received, file a debt collection request (Betreibungsbegehren) with the responsible debt collection office
If the final dunning letter is also ignored, debt collection proceedings can be initiated at the debt collection office at the debtor’s place of residence or registered office. If the claim remains uncollectible even through debt collection proceedings, the debtor item is written off and the loss is recorded as an expense in the income statement (Account 3805 Bad debt losses), ensuring the balance sheet again reflects the true position. The VAT already settled on this invoice may be corrected in your next VAT return (Art. 41 Swiss VAT Act). Those who regularly anticipate bad debts establish an allowance for doubtful accounts (Delkredere), i.e. a valuation adjustment on accounts receivable.
How software takes over debtor management
Instead of manually maintaining open items in a spreadsheet and following up on payment reminders individually, AI-powered accounting software like nextesy automatically matches incoming payments with open customer invoices. This is enabled through multi-bank connectivity and issuing invoices directly from the system, without having to assign every incoming payment by hand.
For the self-employed and SMEs without accounting experience, this is a practical advantage: the open-items list is automatically updated as soon as an incoming payment is detected. Invoices can be sent directly from nextesy and are recorded immediately as open items in the system. This complies with the Swiss SME chart of accounts and meets the VAT requirements set by the FTA.
nextesy is available from CHF 29 per month (SME plan) and offers a 14-day trial period with no upfront payment required. Discover open-item accounting in nextesy and see how automated payment matching replaces manual effort. For those wishing to manage all their accounting in a single system, an overview of all modules can be found under AI accounting for Swiss SMEs.
