Balance settlement is one of the popular ways of settling accounts between different business entities. This process is designed to balance debtors and creditors. In this article we will explain how to use it.
What is balance settlement? Definition of the term
Balance settlement is a process for companies that have some underpayments or overpayments to bills issued. In such a situation, the method of settling balances is used, which is designed to balance debtors and creditors. The process in question involves creating pairs of transactions on the debtor and creditor side that are equalized.
What does balance settlement consist of?
Settlement by balances involves the creditor billing the debtor for an amount that is slightly greater than the debtor’s balance. With the debtor’s balance being the sum of all the bills issued by the creditor for which the debtor has not paid. The debtor then bills the creditor for an amount that is significantly less than his balance. In this way, both parties have equalized balances.
Settlement of balances – practical examples
To better understand what balance settlement is and how it works, let’s look at a few examples.
The first example concerns a company that has issued a bill to a debtor in the amount of PLN 5,000, of which the debtor has paid only PLN 4,000. In this situation, the debtor will bill the creditor for PLN 1,000, so both parties have equalized balances.
In the second example, the debtor has an overpayment of PLN 1,000 to the bills issued by the creditor. In this situation, the creditor will bill the debtor for the amount of PLN 1,000, so both parties have equalized balances.
Balance settlement is one of the popular ways of settling accounts between different business entities. The process is designed to balance debtors and creditors. It involves creating pairs of transactions on the debtor and creditor side that are equalized.
