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Amount Due Explained

Updated on :  

08 min read.

Money due from buyers, clients or customers to another person, be it a seller, creditor, or the government, is the amount due. The amount due could be due towards a particular service provided or goods purchased.

Meaning and definition of the amount due

Often, the amount due corresponds to any amount owed to a seller or provider of goods or services. The amount due consists of the total cost of the goods or services availed in addition to the applicable taxes. Sometimes, sellers sell their goods or services on a credit basis.

This gives rise to accounts receivables. The amount due, in this case, refers to the total value of a particular invoice or invoices that remain unpaid, as the case may be. The amount due is usually displayed at the bottom of an invoice, often both in numbers and words.

Calculation and accounting for the amount due

Arriving at the amount due is fairly simple. The amount due is the sum of the following-

  • Cost of the goods or services provided
  • Applicable taxes, cess and surcharge
  • Fines, interest charges, and penalties (in case of delay of payment beyond the due date)

Any amount that stands due from a third party constitutes an asset for the business. This is because the pending money is an inflow of cash, therefore giving rise to an asset.

Example- Alex Morgan and Co sells sports equipment of Rs.15,000 on credit to Essex Enterprises. Essex Enterprises proceeds to pay an amount of Rs.7,500 towards this sale. In the books of Alex Morgan and Co, the amount due will be recorded as follows-

Accounts Receivable A/c Dr   Rs.15,000

       To Sales A/c       Rs.15,000

[Being goods sold to Essex Enterprises on credit]

Cash A/c Dr   Rs.7,500

      To Accounts Receivable A/c         Rs.7,500

[Being partial payment of Rs. 7,500 made by Essex Enterprises]

With the above transactions, the amount due will be Rs.7,500 from Essex Enterprises.

How to track the amount due?

  • Appoint a person in charge of the recovery of dues

Tracking and following up on amounts due is a time-consuming process. It would benefit the business owner to appoint a person to focus on this area of work specifically (like a recovery agent). 

  • Proof of terms of payment in writing

The details regarding the amount due and the associated terms of payment have to be in written form. This includes the details regarding any additional charges for delayed payments as well. This helps in tracking the amount due and also forms a base for any further action.

  • Opt for an e-billing software

Customised accounting and invoicing software are significant business investments today. This software helps the businessman stay on top of payments and dues in a much more efficient manner.

  • Proactive reminders

It is always better to be proactive than reactive. Regular follow-ups and reminders help facilitate quicker settlement of the amount due. Clients and customers do appreciate the friendly reminders regarding an upcoming payment since this helps them plan better.

  • Introduce financial incentives

Offering the customers a discount on the total amount due is a good and effective tool for recovering dues. Introducing such incentives often prompts the customer or client to settle the dues faster.