One Page That Shows Where You Stand
Your customer has had eleven invoices from you this year, two credit notes and five payments, some of them covering several invoices at once. They think they owe you £3,200. Your system says £5,840. Neither of you is lying. One of you is missing something.
A statement of account is the document that settles this. It puts every invoice, credit and payment for one customer on a single page, in date order, with the balance at the bottom. It is the simplest tool in credit control and, in our experience, the one small businesses most often stop using once things get busy.
This guide covers what a statement of account is, what it should show, the two main formats, how to use the statements your suppliers send you, and what HMRC means when it sends you a "statement" of your own.
What Is a Statement of Account?
A statement of account is a summary of all the transactions between a business and one customer over a period, showing what has been invoiced, what has been paid or credited, and what is still owed.
It is usually sent by a supplier to a customer, monthly, and it is also called a customer statement or account statement. You will sometimes see "statement of accounts" with an "s", which is fine in casual use but can cause confusion with a company's annual accounts. More on that below.
A statement does not ask for payment of anything new. Every item on it should already have been sent to the customer as an invoice or a credit note. Its job is to show the running position in one place so both sides can check they agree.
There is no legal requirement to send statements in the UK. No law or HMRC rule says you must. Most businesses that sell on credit do send them because they get paid faster when they do.
Statement of Account Meaning in Plain English
If a supplier sends you a statement, it is saying: "Here is everything we have billed you and everything we have received from you since our last statement. On our records you owe this much, and this much of it is overdue."
That is all. It is a reconciliation tool for the customer and a reminder tool for the supplier.
What Should a Statement of Account Include?
There is no fixed format, but a useful statement shows:
- Your business name, address and contact details for queries.
- The customer's name and their account number on your system.
- The statement date and the period it covers.
- The opening balance brought forward, if you use the balance forward format.
- Each invoice, with its number, date and amount.
- Each credit note, with its number, date and amount.
- Each payment received, with the date and amount.
- The closing balance owed.
- An aged analysis showing how much is current, 30 days overdue, 60 days overdue and 90 days or more overdue.
- Your payment terms and bank details.
The aged analysis is the line most small business statements leave out, and it is the one that does the most work. "You owe £5,840" is easy to put in a pile. "£2,640 of that is over 60 days old" is much harder to ignore.
Open Item vs Balance Forward Statements
There are two common formats, and the difference matters more than people expect.
| Format | What it shows | Best for |
|---|---|---|
| Open item | Only invoices and credits that are still unpaid, whatever their age | Most small businesses, and anyone with customers who pay invoice by invoice |
| Balance forward (activity) | The balance at the start of the period, all transactions in the period, and the closing balance | Customers with lots of small, frequent invoices, such as trade counters and wholesalers |
An open item statement is easier for a customer to act on. They can tick each line against their own purchase ledger and pay exactly what is listed. Its weakness is that fully paid invoices disappear, so if a payment was allocated to the wrong invoice, the customer may not spot it.
A balance forward statement gives a fuller history but hides the detail of what makes up the opening balance. If a disputed invoice from five months ago is buried in "balance brought forward £4,210", nobody is talking about it.
Our default for clients is open item statements, sent on the first working day of each month. Xero, QuickBooks and Sage all offer both formats, and Xero calls them "outstanding" and "activity" statements.
Statement of Account vs Invoice vs Remittance Advice
These documents all mention the same amounts, so they get muddled.
| Document | Sent by | What it does | Can you reclaim VAT on it? |
|---|---|---|---|
| Invoice | Supplier | Asks for payment for a specific supply | Yes, if it is a valid VAT invoice |
| Credit note | Supplier | Reduces or cancels an invoice | Adjusts VAT already claimed |
| Remittance advice | Customer | Says what a payment covers | No |
| Statement of account | Supplier | Summarises everything on the account and the balance | No |
The VAT column is the one that causes real problems. A statement of account is not a VAT invoice. If you are VAT registered and you only have a supplier's statement, not the invoices behind it, you cannot reclaim the input VAT on those purchases. HMRC requires a valid VAT invoice, and a statement listing invoice numbers and totals does not meet the requirements in VAT Notice 700/21.
We see this every year when we prepare VAT returns for new clients. A business pays a supplier from the monthly statement, never asks for the invoices, and then finds a few hundred pounds of VAT it cannot claim. If you pay from statements, request copies of any invoices you have not received before the payment goes out.
A Worked Example: The Customer Statement
Willowmere Catering Ltd supplies staff lunches to offices in Hertfordshire. One customer, Corbel Lettings Ltd, receives its open item statement dated 31 October:
| Date | Reference | Amount | Days old |
|---|---|---|---|
| 08/08 | INV-2214 | £1,320 | 84 days |
| 22/08 | INV-2239 | £1,320 | 70 days |
| 05/09 | INV-2261 | £1,320 | 56 days |
| 12/09 | CN-0118 (missed delivery) | (£220) | Credit |
| 03/10 | INV-2290 | £1,040 | 28 days |
| 24/10 | INV-2318 | £1,060 | 7 days |
| Balance owed | £5,840 |
Corbel's finance manager replies within a day. On their records they paid £2,640 on 2 October, covering INV-2214 and INV-2239, and they only owe £3,200.
Willowmere checks its bank feed. The £2,640 did arrive on 2 October, but the reference said only "CORBEL" and there was no remittance advice. The bookkeeper posted it as an unallocated payment on a different customer account with a similar name. Willowmere's aged debtors report had shown Corbel as a slow payer for a month, and someone had already drafted a stop on further orders.
The statement caught it. Without it, the error would most likely have surfaced at year end, after a strained phone call and possibly a lost contract.
Two lessons from this one. First, unallocated cash is a warning sign, not a holding pen. Clear it every week as part of your bank reconciliation. Second, statements work in both directions. They catch the customer's mistakes, but just as often they catch yours.
Supplier Statements: The Other Side
The statements your suppliers send you are just as useful, and far more often ignored. Most land in an inbox, get a glance at the total, and go no further.
Reconciling a supplier statement means comparing the supplier's list of what you owe against your own purchase ledger and explaining every difference. The differences almost always fall into a few types:
- Invoices on the statement but not in your books. Usually the invoice was never received, was sent to the wrong person, or is sitting unapproved. Ask for a copy.
- Payments in your books but not on the statement. Usually timing. A payment you made on the 30th may not reach the supplier's ledger until after their statement date.
- Credit notes you are expecting but they have not issued. Chase them. A promised credit is not a credit until the document exists.
- Invoices you have disputed. These should be on a list somewhere with a note of who you spoke to and when.
- Genuine errors. Duplicated invoices, wrong prices, payments allocated to the wrong account.
At year end this matters more. Supplier statement reconciliations are one of the main ways an accountant checks that your trade payables figure is complete, and that invoices for goods received before the year end have been included as costs. A missing £4,000 invoice understates your costs and overstates your profit, and you pay Corporation Tax on profit you did not make until the following year sorts it out.
We reconcile the statements for every major supplier for our clients at each year end. For a business with ten or more regular suppliers, we think doing it quarterly is worth the hour it takes.
Can a Statement of Account Restart the Six Year Clock on a Debt?
This is a question we get from clients chasing old debts, and the answer is no.
Under the Limitation Act 1980, you normally have six years from the date a debt became due to bring a court claim for it. That period can restart if the debtor acknowledges the debt or makes a part payment. But the acknowledgement must be in writing and signed by the person who owes the money, under sections 29 and 30 of the Act.
A statement you send to a customer is your document, not theirs. Sending statements every month for six years does not extend the limitation period by a single day. What does restart it is the customer replying in writing to agree the balance, signing a payment plan, or paying something towards it.
So if a customer replies to your statement with "yes, we know we owe this, we will pay in the new year", keep that email. It may be worth more than the statement itself.
You can also add statutory interest to overdue business debts under the Late Payment of Commercial Debts (Interest) Act 1998, at 8% above the Bank of England base rate, plus fixed compensation of £40, £70 or £100 depending on the size of the debt. Showing the interest on a statement as a separate line, even if you later waive it, tends to move a slow payer up someone's list.
Your HMRC Statement of Account
If you search for "statement of account" you may actually be looking at something from HMRC.
For Self Assessment, HMRC keeps an account for each taxpayer, linked to your UTR number. Your statement shows the tax charged for each year, any payments on account due on 31 January and 31 July, the payments you have made, and any interest or penalties. You can view it at any time in your HMRC online account under "View account", and HMRC may also send statements by post or digitally.
A few things on HMRC statements confuse people every January:
- The amount due on 31 January often includes two things: the balancing payment for the previous tax year and the first payment on account for the current one. People who expected to pay last year's bill are surprised to see it nearly doubled.
- A credit balance is not automatically refunded. HMRC may hold it against your next payment unless you ask for a repayment.
- Interest appears separately and keeps growing until the tax is paid. A statement printed in February will not show interest charged in March.
Limited companies have a similar online view for Corporation Tax, PAYE and VAT, each with its own account and reference. They do not net off against each other unless HMRC chooses to set a repayment against a debt on another tax.
Statement of Account vs Statement of Accounts vs Bank Statement
Three similar phrases mean very different things.
- Statement of account: the customer or supplier statement covered in this guide, or your HMRC tax account.
- Statement of accounts: sometimes used loosely to mean a company's annual accounts, the balance sheet, profit and loss account and notes filed with Companies House. The correct terms are "annual accounts" or "financial statements". If someone asks for your company's statement of accounts, they almost always mean these. Small companies may be able to file micro-entity accounts.
- Bank statement: the record your bank sends you of transactions on your bank account. Same idea as a customer statement, with the bank as the "supplier".
If a lender or landlord asks for a "statement of accounts", check which one they want before you send anything.
Our View
We think the monthly statement is the most underused tool in small business credit control, and it is nearly free to send.
Every accounting package can produce statements in bulk. In Xero it is a few clicks to send outstanding statements to every customer with a balance. Set a recurring task for the first working day of the month and do it, even when you are busy. Especially when you are busy, because that is when payments get misallocated.
Look at the replies. A customer who questions a line on a statement is giving you early warning of a dispute, a lost invoice or a payment you have misposted. All three are cheaper to fix in the first week than in the sixth month.
And take your own suppliers' statements seriously. A ten minute check each month saves VAT you would otherwise lose, catches duplicate invoices before you pay them twice, and makes your year end accounts more accurate. If you want a single number to watch alongside your statements, track your debtor days. If it creeps up, your statements are either not going out or not being read.
How IAK Can Help
We work with small businesses, limited companies and sole traders across North London and Hertfordshire. Accurate statements depend on a clean sales ledger, and a clean ledger keeps your trade receivables and bad debt figures honest.
Our bookkeeping service handles customer statements, receipt allocation and supplier statement reconciliations every month. If you use Xero, our Xero team can set up branded statement templates, automatic reminders and a monthly statement run. For your own HMRC account, our personal tax team can explain what your Self Assessment statement shows and what you need to pay and when. If you want to get on top of what your customers owe you, get in touch.
Sources
- Record keeping for VAT (VAT Notice 700/21), GOV.UK, for what a valid VAT invoice must contain.
- Limitation Act 1980, sections 29 and 30, legislation.gov.uk, on written, signed acknowledgements of a debt.
- Late commercial payments: charging interest and debt recovery, GOV.UK, for statutory interest and fixed compensation.
- Understand your Self Assessment tax bill, GOV.UK, for balancing payments and payments on account.
- Sign in to your HMRC online account, GOV.UK, to view your HMRC statement.