What is Sundry Creditors? Meaning and Examples
Sourav Banik
Author
Sundry Creditors Meaning
Before proceeding to the other details, a simplified description of a sundry creditor can help businesses record it correctly in the books of accounts.
Sundry creditors are businesses that provide goods and services based on credit, and hence many businesses owe them. In simpler terms, a sundry creditor is an individual entity which supplies goods and services on credit or even offers credit facilities during the sales of goods and services. If you buy goods on credit from a business, the business will be a sundry creditor.
The term sundry refers to miscellaneous, which means various or multiple. Because these businesses provide miscellaneous goods and services on credit, they are known better as sundry creditors. Understanding miscellaneous creditors is vital for correct accounting practices, and also comply with Indian Accounting Standards (IND AS).
Sundry creditors' meaning can be more easily understood with examples as cited below.
Sundry Creditors Examples
Indian startups and MSME businesses involve countless transactions on credit. This has made the understanding of a sundry creditor a significant topic to understand. Here is a table to explain what is sundry creditors.
| Transactions | Sundry Creditor | Sundry Debtor |
|---|---|---|
| Due payments to service providers, such as due payment of electricity bills or fuel bills | Service providers | Customers/Business payable |
| Due payments to stationery stores or provision stores for buying miscellaneous goods | Stationery stores or provision stores | Customers/Business payable |
| Payments due to repairing shop, cleaning services | Repairing shop or Cleaning services | Customers/Business payable |
| Payments overdue to vendors and suppliers | Vendors and suppliers | Customers/Business payable |
| Payment delayed or not due to freelancing agent or freelancing business | Freelancing agent or freelancing business | Business that needs to settle the due amount |
Sundry Creditors Journal Entry
The accounting adjustment of miscellaneous creditors is by debiting the expense account and crediting a sundry creditors’ account. It indicates that an expense has been incurred (diminishing the equity) and an obligation (a liability) has been created. Let us take a simple sundry creditors example with a case study.
SoulFry, an Indian cuisine business based in Bengaluru, bought groceries worth ₹5,000 from a local supplier on credit.
- Journal Entry For SoulFry
This entry will appear in the Balance Sheet of SoulFry will appear as below: Current Liabilities: Sundry Creditors - ₹5,000
- Journal Entry For Supplier
The entry will appear in the Balance Sheet of the grocery supplier as: Current Assets: Accounts receivable - ₹5,000
Sundry Creditors in Balance Sheet
The accounting treatment of a sundry creditor in balance sheet is of two types. You may ask if sundry creditors debit or credit in the business books. For the business that owes the amount, miscellaneous creditors are recorded as a Current Liability. For the business that will receive the amount, Sundry Creditors is recorded under the name Accounts Receivable. It is recorded as a liability because the business owes the amount to the supplier or the vendor, and must settle it within a specified period.
Sundry Creditors in Trial Balance
The sundry creditors journal entry is different in a trial balance than on a balance sheet. This is recorded on the credit side of the trial balance as a business treats this as a commercial liability. A trial balance is kept by every business for transparent accountancy, and it keeps accurate transaction history of every ledger activities.
Benefits of Recording Sundry Creditors
Here are some of the benefits that a firm gets to record sundry liabilities.
Helps in Liquidity Analysis
By classifying miscellaneous creditors as current liabilities, stakeholders can determine the liquidity position of the company. High current liabilities concerning current assets can be an indication of potential cash flow problems, which can impact the company's ability to service its short-term debt.
Serves As a Financial Health Indicator
A company can easily understand the total amount it owes to miscellaneous businesses and vendors by marking the miscellaneous creditors. This works as a financial health indicator, as a higher number of creditors can imply that the liability of the business is at a negative balance. This also helps the company to understand its cash flow system and helps to maintain better financial reporting.
Learn more about how to maintain a transparent financial reporting in your company.
Working Capital Impact
Sundry liabilities have a crucial contribution to working capital, i.e., current assets minus current liabilities. Proper management of miscellaneous creditors helps to enhance working capital, enabling the firm to invest in growth avenues and keep operations efficient.
Maintains Supplier Relationships
A company is dependent on a large number of suppliers and vendors, where prompt payment and on-time delivery are always appreciated. By recording miscellaneous creditors, companies can easily understand their market debts, and the number of suppliers that are pending to be paid. This facilitates promotion of trust and maintains a positive relationship with the vendors and suppliers.
Audit and Compliance
The company books of accounts are submitted for annual audit. Auditing helps a company to maintain a positive financial position, and also aids its investors and creditors to have a brief understanding of the liquidity of the firm. By recording miscellaneous creditors properly, firms can submit their financial statements for audit. Also, proper recording of business creditors avoids cases of fraudulent accounting practices.
Disclosure Requirements
The liquidity, financial status, and business efficiency of a company are found out by disclosure of accounts. Disclosure of the nature of business creditors is usually required by companies in the financial statement notes. This disclosure is an added explanation to stakeholders regarding the company's obligations and terms with its creditors.
How to Manage Sundry Creditors Effectively?
Without having proper sundry creditor management, a business can run the risk of tight cash flow and piling up debts. Strategic actions such as recording sundry liabilities can help businesses to make on-time payments, and also maintain a healthy partner relationship. These are a few ways to manage sundry creditors effectively:
Having a Centralized System
A centralized system is necessary, as it directly overlooks all the transactions in one go. For example, when a centralised system is established, you can quickly track all the real transactions, and locate the actual amount of sundry liabilities.
Activating Prompt Payments
A business can only schedule long-due payments once it understands the miscellaneous liabilities. Delayed payments can often turn the relationship with the stakeholders negative, and may also lower the credit score. Investors tend to invest more in those businesses that have a better credit score with a healthy transaction history. Depending on the sundry creditor number, you can take the initiative of creating an automatic payment.
Ease of Reconciliation
The Balance Sheet and Trial Balance are the two important financial instruments for any business to comprehend the current financial position. This makes the reconciliation of accounts a significant part of bookkeeping. You will have to reconcile your internal records with the creditors and tally for any mismatch. A sundry creditor list eases this process, as it quickly finds out the dues and unauthorized purchases. This also prevents all future disputes with suppliers and vendors.
Negotiating Payment Terms
If your business defaults on payment too often, it can lead to multiple problems in maintaining the relationship with the creditors. Knowing who the business creditors are can help you with sending prompt notices to businesses. This may stretch payment dates or obtain early payment discounts. Moreover, your business can easily find out if it is going to face a deficiency in cash flow because of too many sundry creditors, it can negotiate longer payment terms with creditors.
Credit Policies
Your business can frame credit settlement policies by having a sundry creditor list. Such policies help resolve cases of default payments, understanding credit limits, and hence avoiding shortages in fund flow. By revising these policies, businesses can evolve their business practices updated with the market conditions, which ensures that there is better credit management.
Monitor Financial Health
To keep an eye on the financial metrics, a business needs to regularly monitor the financial health as well as the overall financial performance. Sundry creditors help a business to keep a close eye on the necessary financial metrics, such as Debt-to-Equity Ratio, and cash flow ratio. Your business can effectively manage the bills payable and check for regions of improvement.
Also get to know the main differences between cash flow and fund flow for your business.
Difference Between Sundry Creditors and Sundry Debtors
There are certain differences between sundry debtors and creditors, here are they:
| Basis of Differences | Sundry Creditors | Sundry Debtors |
|---|---|---|
| Meaning | Sundry creditors refer to the businesses who supply goods and services on credit | Sundry debtors refer to the businesses who owe to businesses for purchasing their goods or services |
| Accounting treatment in Balance sheet | Appears as a liability in the Balance Sheet of the company | Appears as an asset in the Balance Sheet of the company |
| Functionality | Sundry creditors refer to the amount due and represent company debt | Sundry debtors are treated as asset, hence represents the amount to be received |
Conclusion
For businesses, sundry creditors are an integral component of financial management. Better management of the business involves correct financial reporting, promotes healthy cash flows and also develops better relations with the vendors. SMEs and Indian startups have been reported to have a deficiency in credit management, and they can revive this by adopting the above strategies. This blog clearly illustrates the meaning of miscellaneous creditors, their difference with sundry debtors and ways to manage them.
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Frequently Asked Questions
Explore moreWhat if I do not pay my sundry creditors on time?
If your business does not clear the settlement with sundry creditors on time, it can negatively affect the business credit history. Moreover, this can strain the relationship with the suppliers and may even lead to long-term negative repercussions.
Can I negotiate terms of payment with my sundry creditors?
In most instances, you can negotiate terms of payment with your sundry creditors. It is always best to keep lines of communication open and discuss any difficulties you are experiencing, suggesting a mutually acceptable payment schedule.
How do I effectively monitor my sundry creditors?
The most effective means of monitoring sundry creditors is through the use of accounting software. These applications computerize most of the process of managing accounts payable, making it simpler to monitor payments, keep track of balances, and create reports.
Are sundry creditors a current liability?
Yes, in the balance sheet sundry credit individuals are recorded under Current Liabilities. The reason for receding it as a liability is because a business owes this amount to its vendors and suppliers.
How can I enhance my sundry creditor relationship?
You can take cautionary measures such as keeping a constant record of the sundry liabilities, trying to make prompt payments and communicating before time about any possible delays. This will develop the commercial trust and strengthen vendor relationships.
Do you have more questions?
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