Debt settlement

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This discussion explains how a secondary debtor (Debtor 2) can directly pay off the debt owed by their supplier (Debtor 1) to you. The process involves receiving the payment into your account, with your bank statement serving as proof. You'll then need to issue a journal entry to transfer the amount from Debtor 2 to Debtor 1, and obtain a signed, sealed letter from Debtor 2 confirming this arrangement for proper documentation.

gaurav jain

gaurav jain (Querist)

21 February 2020 We sold goods to our debtor 1. Debtor 1 further sold our goods to our another debtor - debtor 2. Now debtor 1 wants that debtor 2 directly pays his dues of debtor 1 to us. Can he do so what is the procedure?

Akash Monwani

Akash Monwani (Expert)

22 February 2020 Yes , Debtor 2 can directly pay the amount to you
Following will be accounting treatment . First deposit the amount recieved in account of Debtor 2 the documentary evidence for it will be your bank statement
Secondly transfer the amount via journal entry from debtor 2 to debtor 1 for the purpose of documentary evidence obtain a letter from debtor 2 on his letterhead sealed and signed to transfer the amonut

Akash Monwani

Akash Monwani (Expert)

22 February 2020 Yes , Debtor 2 can directly pay the amount to you
Following will be accounting treatment . First deposit the amount received in account of Debtor 2 the documentary evidence for it will be your bank statement
Secondly transfer the amount via journal entry from debtor 2 to debtor 1 for the purpose of documentary evidence obtain a letter from debtor 2 on his letterhead sealed and signed to transfer the amount

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