What is a Statement of Account in Business?
Statement of Account Definition
A statement of account is a financial document issued by a business to its customers which provides a detailed summary of transactions over a specific period
It typically shows all sales, payments, credits, and the remaining balance owed by the customer.
The statement of account is used as a communication tool between businesses and their customers to help both sides track outstanding invoices.
Sample Statement of Account Template
A typical statement of account includes the following elements:
- Date: The date that the statement of account is issued.
- Customer Information: The recipient’s name, address, and account number.
- Statement Period: The date range that the statement of account covers.
- Transaction Details: A list of all transactions, including invoices, credit notes, payments received and any other adjustments.
- Transaction Date: The date that each transaction occurred.
- Reference: References for each transaction such as invoice and credit note number.
- Balance: The opening balance at the beginning of the statement period and the balance after each transaction.
- Total Amount Due: The final amount owed by the customer at the end of the period.
Example of a Statement of Account
To help our understanding further, let’s consider an example of a statement of account from a fictional company, ABC Supplies, to their customer, XYZ Construction:
In this example, XYZ Construction owes ABC Supplies Ltd a total of £800 as of 31st January 2025.
The statement lists each transaction, including the opening balance, invoices issued, payments received, and any credits applied.
This breakdown helps XYZ Construction review and verify the transactions before making a payment.
How is a Statement of Account Different from an Invoice?
It’s common for people to confuse a statement of account with an invoice, but they serve completely different purposes:
- Invoice: A document issued by a seller to a buyer, requesting payment for goods or services provided. It usually relates to a single transaction.
- Statement of Account: A summary of all transactions over a period of time, showing the cumulative effect of multiple invoices and payments. It provides an overview of the account status rather than requesting payment for a specific transaction.
In short, an invoice is a request for payment, while a statement of account is a summary of the account’s activity.
Why is a Statement of Account Important?
A statement of account is important for a number of reasons:
Record Keeping
A statement of account consolidates all transactions, making it easier to track purchases, payments, credits, and debits over a period of time.
This helps ensure that every financial interaction is documented, providing a complete history of activities.
Whether for personal or business use, this documentation can be used as a reference for future analysis, tax filing, or auditing.
Cash Flow Management
For businesses, the statement of account plays a vital role in monitoring receivables, which directly impacts cash flow.
By reviewing the account regularly, businesses can identify overdue payments and take appropriate action to collect outstanding amounts.
Dispute Resolution
In cases of discrepancies or confusion about an account balance, a statement of account is used as a reference point to help to resolve the situation.
If a customer challenges an invoice or payment, the statement can provide a reference and evidence of transactions on the account.
For example, a statement of account could highlight a missing payment from a customer, or allow them to query an invoice that they don’t recognise.
Who Uses a Statement of Account?
A statement of account is used internally by businesses, and externally by customers:
Businesses (Sellers/Vendors)
Businesses use statements of account to communicate with customers regarding their outstanding balances.
It is particularly useful for companies that have repeat transactions with the same customers, such as wholesalers and service providers.
Customers (Buyers/Clients)
For customers, a statement of account helps them keep track of their spending and verify that their payments have been applied correctly.
It’s particularly useful to them for reconciling accounts, ensuring that they are aware of any outstanding debts, and avoiding late payment fees.
Tips for Efficient Statement of Account Management
There are several methods that businesses can use to effectively manage statement of accounts.
Automate with Accounting Software
Using accounting software can significantly improve the efficiency of managing statements of account.
These tools can automatically generate statements, ensuring accuracy and reducing the risk of human error.
Automation also saves time by removing the need for manual entry, allowing businesses or individuals to focus on other aspects of financial management.
Accounting software can offer features such as recurring billing, integrated payment processing, and easy tracking of payments, all of which contribute to smoother account management.
Communicate Regularly
By sending statements of account on a consistent basis, such as monthly or quarterly, a business can help keep customers updated about their outstanding balances.
This proactive approach can also serve as reminders of upcoming or overdue payments, which can reduce the likelihood of debts going unpaid.
Include Payment Instructions
Making it easy for customers to pay is crucial for ensuring that payments are received on time.
Good practice would be to always include clear payment instructions on the statement of account, such as available payment methods (credit card, bank transfer, online payment portals) and due dates.
For businesses, offering multiple payment options increases the chances of timely payment.
Clear instructions also reduce the chances of delays caused by confusion or uncertainty about how to settle the account.
Follow Up on Overdue Balances
It’s important for businesses to stay on top of overdue accounts, as delayed payments can adversely affect cash flow.
Therefore, a statement of account can be used as an opportunity to remind customers of overdue balances and encourage them to settle their debt.
Many businesses set up automatic reminders after a certain period of time, such as a week or two after the due date, to send reminders and notices of overdue payments.