When it comes to accounting, a claim is what a client owes you for the product or service they’ve bought.
When we talk about a claim we usually refer to an invoice that you’ve sent your client, but that they haven’t yet paid. A claim can also be called a customer claim.
A claim is resolved once the payment has been received and the money has been deposited in your business bank account.
What is a creditor and a debtor?
Claims involve two key parties: the creditor and the debtor. A debtor is the person or company that owes money, usually as a result of purchasing on credit—which can be done either through invoicing or via credit card transaction—or by taking up a loan.
The creditor is the person who is owed money.
When you purchase products and services from a supplier and pay via invoice, your company is the debtor, while the supplier is the creditor. In that case, the supplier has a claim against you.
What to do if you don’t get paid for your claim?
Occasionally, clients won’t pay your claim. This is also referred to as defaulting on a payment.
If your client doesn’t pay, either partially or in full, it’s referred to as a loss on a claim. If you have losses on a lot of claims, this could cause bad liquidity, and in the worst case—bankruptcy.
See also: How to handle outstanding invoices
If you’ve tried to follow up with the client without success, you should write off the invoice as bad debt. Writing off the invoice means that that income won’t be listed in your accounts, so you won’t have to pay tax on it. It’ll also ensure that your reports are accurate.
However, you can’t write off the invoice unless one of the following is true:
- A certain amount of time has passed since the invoice was due, for example six months, and you’ve sent several payment reminders to the client
- The company that owes you money has been declared bankrupt
- You’ve tried going via a debt collection agency, but the invoice has still not been pai