Accounts sub-ledger

What it means

The sub-ledger records receivables and payables broken down by partner and by document. It shows which specific invoice is paid, which is part-paid and which is still open.

The general ledger shows only the total balance on the customer account. The sub-ledger decomposes that total into documents - without which neither collection nor reconciliation is possible.

The taxpayer account at the Financial Administration works the same way: it is a sub-ledger the office keeps for the company, with tax charges on one side and payments on the other. A company whose own ledger for the tax office is in order can explain an overpayment or arrears before the request arrives.

How it works in practice

Matching runs on the payment reference from the bank statement, ideally automatically. Ageing by due date is the basis for reminders and for deciding to halt supply.

At the stocktake the balances are agreed with trading partners. Differences are chased immediately: a year later, a document the other side does not hold is far harder to prove.

Advance payments need particular care. Payment of a proforma for an advance has to be matched in the sub-ledger against the final invoice at settlement; otherwise the partner appears to owe the whole amount although most of it was paid up front, and the gap is traced back through documents at the balance confirmation.

What to watch out for

Incomplete matching manufactures phantom receivables and payables: an invoice posted twice, a payment matched to the wrong document, an overpayment hanging for years. Such balances distort the balance sheet and flatter collectability.

Mutual claims that partners simply deduct when paying, without a written set-off, stay open on both sides of the sub-ledger. The difference between payment and invoice then looks like an underpayment and draws a reminder, and at a tax audit there is no document proving the claim was extinguished.