What Are Creditors Amounts Falling Due Within One Year?

“Creditors amounts falling due within one year” is a term that you’ll often see in financial statements, particularly within the balance sheet of a company. It shows the debt that a company owes to creditors, and provides great insight into short-term liquidity and potential cash flow issues. But how does it do this?

In this article, Real Business will outline the particulars behind what this term means, how to use this information, what happens if you fail to pay and more.

What Does “Creditors’ Amounts Falling Due Within One Year” Mean?

This term will be found as a line item in your company balance sheet. The figure represented there will show how much the company owes to creditors within the next 12 months. This money owed includes short-term obligations, such as loans, accounts payable, tax liabilities etc.

The number is a big indicator of the financial situation of the company, with high credit amounts signifying high debt. Whilst not necessarily a red flag, as many healthy businesses can have debts, it would most definitely raise concerns if the money was not being paid back on time. On the opposite side, low creditor amounts mean that the company is healthy and its financial position is strong.

What Creditors Appear On A Balance Sheet?

Creditors are listed as “current liabilities”, and can be anything from government to private. The total figure of a company’s debt can be divided up against several creditors, with the following being the most common categories:

• Trade creditors – These could be invoices for goods and services that have not yet been paid. They often cover raw materials, goods, loans, and services.
• Short-term loans – Loans, or parts of a loan, that are due for repayment.
• Accrued expenses – Expenses that are incurred by not paying, such as wages, rent, interest etc.
• Corporation tax – This is the tax liability of a limited company.
• Social security costs – The amount owed to the government based on employee-related taxes (NI Contributions etc.)
• Dividends payable – Dividends declared but not yet paid to shareholders.
• Deferred income – This represents income that has been received by the company for goods/services that haven’t yet been executed.

You can find a list of this information under the liabilities section on a balance sheet, but not all creditors are the same. The “long-term liabilities” section includes secured creditors which are not paid within the next year – however, these are not applied under the “within one year” rule. This only applies to current liabilities or short-term liabilities.

Regardless of their due dates, these debts are all due within the coming 12 months, meaning you must prepare company accounts during that period.

What Are Some Exemptions To The One-Year Creditor Payment Rule?

Although some money owed is classed as a current liability, it may not be mandatory to pay within one year in some situations:

• Refinancing – A loan agreement allows the company to refinance its debt.
• Deferred payment – An agreement with a landlord or a supplier is made to defer payment for some time, especially those who they have a long-term agreement with.
• Priority payment – The company makes an early payment on a long-term contract.
• Hardship – The company is struggling financially, and the debt is arranged to be paid over a longer period.

These exceptional situations, however, do not appear on a balance sheet – it’s done on a managerial level. Before signing any agreement that you’re not entirely sure will trigger these exemptions, ask for advice.

Who May Want To See Your Balance Sheet?

Many people and organisations might request to see your balance sheet, such as:

• Banks – Banks use your balance sheets to assess your assets and financial situation, especially in cases of applying for a loan.
• Supplier – Suppliers want their bills paid on time to keep their businesses functioning smoothly. If they suspect that they may not, they may request to see balance sheets.
• Shareholders – Shareholders have capital in your company, and have a right to access your balance sheets to assess health.
• Potential investors – When you’re looking to attract investors, ready your balance sheets, as investors want evidence of good financial health.
• The government – Governments want to see balance sheets purely for tax-related issues. For example, if you’re claiming tax reliefs or benefits, your balance sheets go a long way in calculating correct figures.
• Companies House – In the UK, companies are required to file their annual accounts and financial documents with companies house.

Presenting Your Balance Sheet For Refinancing

High amounts of debt for a business can signal huge negative consequences, which is why owners should take steps to make it more manageable. One of these ways is by refinancing, consolidating the debt into one payment and thereby getting better interest rates or extensions to the payment period.

The process starts when you present your balance sheet, allowing the lender to assess your financial standing and quality as a candidate. They will inspect your secured and unsecured creditors, getting an idea of your total liabilities.

Do not conceal information. It will likely cause an automatic rejection upon discovery, and egregious cases can go right to court.

Balance Sheet Tips

Now that you have a comprehensive idea about the balance sheet, its purposes and how it works, follow these tips to prepare one for your business:

• Update regularly – An outdated balance sheet will negatively impact your business. Your balance sheet will be more trustworthy if it is prepared once a year, or perhaps more when a business grows to mid-sized and beyond.
• Include all assets and liabilities – Your balance sheet should include all the financial figures related to your business, creating a comprehensive database.
• Double-check the information for accuracy – You do not want a balance sheet with errors, as this can cause delays or outright rejections from business proposals.
• Consult professionals – Accountants are your trusted source of information and guidance.

Final Thoughts

A creditor’s amount falling due within one year is an integral part of every balance sheet. It is the figure that shows how much money the company owes to creditors in the short term. Taking all current liabilities and calculating them will lead you to obtain the creditor’s amount falling due within one year.

As a result, ensure your balance sheets are up to date and well taken care of. Used correctly, they can be an important tool for progressing your business. Debt is a natural part of the business world, with even the biggest companies in the world having debt to free up capital. Embrace it, and use it to your advantage.

FAQ: What else is on the balance sheet?

The following is a comprehensive list of other terms that are related to creditors’ amounts falling due within the year:

• Assets – Company’s possessions with monetary value including cash, property, and stock.
• Liabilities – Anyone the company owes money to. This includes lenders, suppliers, and credit cards.
• Equity – The difference between assets and liabilities. Positive equity is when the assets’ worth exceeds the liabilities, and vice versa.
• Revenue – Also known as turnover – the money that a company receives from different sources like sales.
• Expenses – Capital that goes out of the company for bills and the like.
• Profit – Money a company owns after subtracting expenses from revenues.
• Stock – All raw materials, finished products or spare parts found in a company’s inventory.
• Capital and reserves – Money a company leaves aside for investments, best, or emergencies.
• Called up share capital – Money that the shareholders invest in a company.
• Accumulated losses – The total number of losses a company has made over some time.
• Profit and loss account – A summary of the revenue, expenses, and profit for a specific period.
• Annual accounts – Legal documents that companies must publish each year, summarising their financial status.
• Capital assets – Fixed assets that a company possesses for more than a year.
• Current assets – Short-term assets that companies expect to convert into cash or consume within the current accounting year.
• Fixed assets – Long-term assets that a business owns, including tangible items like buildings and machinery and intangible assets such as patents and copyrights.
• Net assets – Reflect the total ownership interest after accounting for liabilities, calculated by subtracting liabilities from the total of fixed and current assets.
• Statutory accounts – Financial statements that a limited company must file, providing a comprehensive view of a company’s financial position.
• Tangible assets – Key components that reflect a business’s financial health, are crucial for understanding both the balance sheet and overall asset management.

If you are running a small business, an accountant is not necessary. But you may want to have one retained for consultation on tax issues, and when preparing your balance sheet. Accountants can certainly save you time, guide you while navigating complex financial issues, and provide benefits to your business that will allow a comfortably offset initial outlay.