TRW & Co · Accounting and audit
Accounts Receivable, Accounts Payable and Reconciliations in the UAE
Accounts receivable vs accounts payable is the difference between what customers owe you and what you owe suppliers. In the UAE both ledgers now drive tax outcomes: VAT input tax depends on supplier verification and timely payment, while bad debt relief and debt recovery depend on clean customer records. This guide explains both cycles, reconciliations and recovery routes.
Key pointFrom 1 October 2026 the supplier master file is tax evidence: input VAT can be denied if suppliers and supplies were not verified and documented, even when the tax invoice itself is valid.
At a glance
Asset versus liability
Receivables are amounts customers owe you, shown as current assets; payables are amounts you owe suppliers, shown as current liabilities on the balance sheet.
Supplier checks from October
FTA Decision No. 13 of 2026 requires documented verification of suppliers and each supply before input VAT is deducted, from 1 October 2026.
Six-month payment rule
Input VAT must be reversed if a supplier is not paid within six months of the agreed date, and can be reclaimed once payment is made.
Bad debt relief
Suppliers can adjust output VAT on unpaid invoices after writing the debt off, waiting more than six months from supply and notifying the customer.
Five-year commercial limit
Claims between merchants are generally time-barred five years after the obligation fell due, so ageing receivables need legal decisions in good time.
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Accounts receivable vs accounts payable: the short answer
The difference in accounts receivable vs accounts payable is direction. Receivables are amounts customers owe you for goods or services already supplied, recorded as a current asset. Payables are amounts you owe suppliers, recorded as a current liability. Together they make up most of a trading company's working capital, and the gap between how fast you collect and how fast you pay decides whether a profitable business has cash.
In the UAE both ledgers now carry legal weight beyond the balance sheet. Since 1 October 2026, input VAT can only be deducted after suppliers and supplies have been verified and the checks documented, and input tax must be reversed where a supplier is not paid within six months of the agreed date. On the receivables side, VAT bad debt relief, the five-year limitation period for commercial debts and the evidence a court needs for a payment order all depend on clean customer records and regular reconciliations.
This guide, current as of October 2026, explains both processes, the reconciliations that keep them reliable, the VAT rules that turn on them and the recovery routes when customers do not pay. The accounting work itself is delivered with our group company A&A Consultancy; TRW & Co, as a law firm, covers the legal and regulatory side.
How the receivables cycle works
Accounts receivable start before the sale. A sound order-to-cash cycle in the UAE has five stages.
Credit approval. Check the customer's trade licence, the legal entity that will sign the order, its authorised signatory and, for larger limits, financial statements or a bank reference. Set a credit limit and payment terms in writing.
Contract and order. Your terms should state the payment period, the currency, late payment consequences, retention of title where relevant, and the courts or arbitration that will hear disputes. Terms that are clear at this stage are what make a later payment order possible.
Invoicing. A VAT-registered supplier must issue a valid tax invoice with the details the VAT legislation requires. Under the e-invoicing programme, businesses will issue structured e-invoices through an accredited service provider, with the second phase going live on 1 July 2027. Delivery notes, signed acceptance and timesheets should be filed with each invoice.
Collection. Send statements monthly, chase overdue amounts on a fixed timetable and escalate to a formal notice when the agreed period has passed.
Measurement. Under IFRS 9, trade receivables are reviewed for expected credit losses, and most businesses use the simplified approach with a provision matrix based on ageing. A realistic provision protects the accuracy of profit and, in turn, of the corporate tax computation.
How the payables cycle works
The purchase-to-pay cycle mirrors the receivables side, with one major addition in 2026: supplier verification.
Supplier onboarding. Collect the trade licence, tax registration number, bank details on supplier letterhead and the identity of the authorised representative. From 1 October 2026, FTA Decision No. 13 of 2026 sets the checks a business must carry out on suppliers and on each supply before deducting input tax, including additional steps for suppliers above set annual purchase values.
Purchase order and receipt. Raise a purchase order, record the goods received or services accepted, and match the supplier's invoice to both. This three-way match is the strongest everyday control against duplicate payments and fictitious suppliers.
Approval and payment. Approve invoices against delegated authority limits and pay electronically. Bank detail changes should be confirmed by a call to a known contact, never by email alone, because invoice-redirection fraud is common.
Tax treatment. Input tax is recoverable only if the cost relates to taxable supplies, a valid tax invoice is held and the supplier is paid, or intended to be paid, within six months of the agreed payment date. Our guide to VAT returns and input VAT recovery sets out every condition.
Accounts receivable vs accounts payable compared
| Feature | Accounts receivable | Accounts payable |
|---|---|---|
| What it is | Amounts customers owe you | Amounts you owe suppliers |
| Balance sheet | Current asset (net of expected credit loss) | Current liability |
| Cash effect | Cash comes in when collected | Cash goes out when paid |
| Main document | Your sales tax invoice and delivery evidence | Supplier's tax invoice, purchase order and receipt record |
| Main VAT point | Output tax due on supply; bad debt relief if unpaid after write-off and notice | Input tax deductible only after verification, with reversal if unpaid after six months |
| Main legal risk | Losing the right to recover through delay or poor evidence | Fraud, duplicate payment, denied input tax and supplier claims |
| Key report | Aged receivables | Aged payables and supplier verification log |
The comparison of accounts receivable vs accounts payable is not only academic. A business that collects in 90 days but pays suppliers in 30 is financing its customers, and the gap must be funded by equity or debt. Our article on cash flow management in the UAE covers forecasting and working capital levers.
Reconciliations: bank, customers, suppliers and intercompany
A reconciliation proves that a balance in your ledger matches an independent record. Whatever the debate over accounts receivable vs accounts payable priorities, both ledgers are only as reliable as the reconciliations behind them. Four matter most.
Bank reconciliations
Match every bank and card transaction to the ledger, investigate unmatched items and clear them within the month. A bank reconciliation that is months behind is the most common symptom of a business in accounting backlog.
Customer reconciliations
Send statements and agree balances with significant customers, ideally quarterly and at year-end. A customer's signed confirmation of the balance is also powerful evidence in recovery proceedings and can help protect limitation.
Supplier reconciliations
Compare supplier statements to your payables ledger. Differences usually reveal missing invoices, unrecorded credit notes or payments allocated to the wrong invoice, each of which affects VAT.
Intercompany reconciliations
Groups must agree balances between entities every month and settle or document them. Under corporate tax, transactions between related parties must be at arm's length, and unreconciled intercompany balances are a red flag in a transfer pricing review; see our guide to transfer pricing in the UAE.
A monthly close that produces these reconciliations reliably looks like this:
- Cut off. Record all sales and purchases for the month, including goods received but not yet invoiced.
- Reconcile bank and cards. Match transactions and clear unreconciled items.
- Agree customer and supplier balances. Review statements for key accounts and investigate differences.
- Agree intercompany balances. Confirm both sides match and document settlement terms.
- Review ageing. Escalate overdue receivables and flag payables approaching the six-month VAT point.
- Update the VAT position. Reverse input tax on unpaid invoices past six months and check supplier verification files.
- Sign off. A named reviewer approves the reconciliations and the list of open items.
Why receivables and payables matter for VAT in 2026
Three VAT rules sit directly on these ledgers.
Supplier verification. Article 54(bis) of the VAT Decree-Law, added from 1 January 2026, makes verification of the validity and integrity of supplies a condition of deducting input tax, and FTA Decision No. 13 of 2026 sets the detailed checks from 1 October 2026. Input tax can also be denied where a purchase is linked to tax evasion and the buyer knew or should have known. The supplier master file is now tax evidence.
The six-month payment rule. If a supplier is not paid within six months of the agreed date, the input tax must be reversed, and it can be reclaimed once payment is made. An aged payables report is therefore a VAT control.
Bad debt relief. A supplier that accounted for output tax on an unpaid invoice can adjust it where the debt has been written off in its accounts, more than six months have passed since the supply and the customer has been notified of the amount written off. Without a clear ageing record and written notice, the relief is lost.
Excess recoverable VAT that is not used or claimed within five years lapses under the 2026 amendments, and a transitional window for older balances closes at the end of 2026. Reconcile your EmaraTax account to the ledger now, and decide whether to offset or request a refund.
The FTA's VAT pages publish the guides and clarifications that support these rules. Our page on VAT in the UAE explains the wider regime.
When receivables go unpaid: recovery options
Comparing accounts receivable vs accounts payable from a legal angle, receivables carry the bigger risk: you have already performed and must now prove and enforce the debt. Onshore, the main routes are:
- Demand letter and negotiation. A formal notice with a clear deadline, often followed by a signed acknowledgement or payment plan.
- Payment order. For a written, fixed and due debt, the creditor gives at least five days' notice and files a short petition decided on the papers; see our guide to the payment order procedure.
- Cheque execution. A dishonoured cheque can be presented for execution as a writ; see our article on the cheque law.
- Ordinary claim or arbitration. For disputed debts, or where the contract requires arbitration.
- Insolvency. Where the debtor cannot pay, creditor rights under the bankruptcy law come into play; see insolvency and bankruptcy in the UAE.
Time matters. Claims between merchants arising from commercial business are generally time-barred five years after the obligation fell due, under the Commercial Transactions Law. DIFC and ADGM contracts follow their own rules, and arbitration clauses send disputes away from the courts. Our debt recovery practice works on these routes; where representation before UAE onshore courts or the DIFC/ADGM Courts is required, we work alongside locally licensed advocates and registered practitioners.
An illustrative scenario
This scenario is illustrative; the parties are generic.
A Sharjah building materials distributor sells on 60-day terms to contractors and buys from manufacturers on 30-day terms. Its aged receivables show a contractor more than eight months overdue, and its payables show one supplier unpaid for seven months after a quality dispute.
On the receivables side, the company obtains a signed statement of account from the contractor, sends a formal notice and, when payment does not follow, files a payment order supported by the purchase orders, delivery notes and statement. It also writes off the portion it does not expect to recover and notifies the customer, preserving VAT bad debt relief.
On the payables side, it reverses the input tax on the disputed supplier invoice because the six-month point has passed, records the dispute and reclaims the tax when a settlement is paid. It also completes the supplier verification file for its two largest suppliers ahead of the 1 October 2026 start date. The accounts receivable vs accounts payable review took one afternoon; the cost of not doing it would have been lost VAT and a weaker claim.
Risks and common mistakes
Letting receivables age without action
Debts become harder to collect with every month, and the evidence fades as staff leave and emails are lost. Many businesses still assume a ten-year limitation period for commercial debts; the current rule is generally five years from the due date between merchants. Set a fixed escalation timetable, obtain written acknowledgements of balances, and take a decision on legal action well before limitation approaches.
Changing supplier bank details on an email request
Invoice-redirection fraud targets payables teams with convincing emails asking for payments to a new account. Once money has left, recovery is slow and uncertain, and the original supplier still has a claim for its invoice. Require call-back verification to a known contact, dual approval for master data changes, and periodic review of changes made. Report suspected fraud promptly to the bank and the police.
Treating supplier verification as a one-off
The 2026 rules require checks on each supply as well as on the supplier, and re-verification of suppliers not checked in the previous twelve months. A file built once at onboarding will not support input tax claims a year later. Build verification into procurement, record the date of each check and keep transaction-level evidence for higher-value purchases. Without it, the FTA may deny input tax even where the invoice is valid.
Ignoring unreconciled intercompany balances
Intercompany balances that do not agree, or that are never settled, distort each entity's accounts and invite transfer pricing questions. They can also be treated as loans requiring arm's length interest, or raise questions about whether a balance is recoverable at all. Agree intercompany balances monthly, document the terms in a written agreement and settle them on a regular cycle.
Claiming input tax on invoices that will not be paid
Businesses in a dispute with a supplier often keep the input tax on the disputed invoice indefinitely. Where payment has not been made within six months of the agreed date, the input tax should be reversed in the return, and reclaimed only when payment is made. Leaving it in place creates an error that may later require correction with penalties attached.
Checklist and next steps
A short accounts receivable vs accounts payable review each month, owned by a named person and reported to management, covers most of the risk described above.
- Run aged receivables and payables reports every month and assign owners to every overdue item.
- Complete supplier verification files and a written verification policy.
- Reverse input tax on supplier invoices unpaid six months after the due date.
- Write off and notify customers to preserve VAT bad debt relief where appropriate.
- Reconcile bank, customer, supplier and intercompany balances, with named sign-off.
- Diary limitation dates for significant receivables and decide on recovery action early.
The bookkeeping and reconciliation work is delivered with our group company A&A Consultancy. TRW & Co advises on contracts and credit terms, VAT disputes and debt recovery. To discuss a specific balance, contact TRW & Co at info@trw.co or +971 58 942 1012.
Frequently asked questions
01What is the difference between accounts receivable and accounts payable?
Accounts receivable are amounts customers owe your business for goods or services already supplied on credit; they are a current asset. Accounts payable are amounts your business owes suppliers for goods or services received; they are a current liability. Receivables turn into cash when collected, while payables reduce cash when paid. Managing the timing of both determines working capital, and in the UAE both ledgers also support VAT positions and any later legal recovery.
02How often should a UAE business reconcile its accounts?
Bank and card accounts should be reconciled every month as part of the close. Significant customer and supplier balances should be agreed with statements at least quarterly and at year-end, and intercompany balances monthly. Monthly reconciliations catch errors while documents are fresh, support VAT returns and make the annual audit faster. They also give you signed balance confirmations that are useful evidence if a customer later disputes what it owes.
03What happens to input VAT if I do not pay a supplier?
Input tax is recoverable only if the supplier is paid, or you intend to pay, within six months of the agreed payment date. If that point passes without payment, the input tax should be reversed in the return for the period in which the six months end. When you later pay, the input tax can be reclaimed. Disputed supplier invoices are the most common source of errors here, so track them separately in your aged payables report.
04How does VAT bad debt relief work in the UAE?
A supplier that charged and paid VAT on a supply can reduce its output tax where the customer has not paid, provided the debt has been written off in full or in part in its accounts, more than six months have passed since the date of supply and the customer has been notified in writing of the amount written off, identifying the invoice. If the customer later pays, the VAT must be accounted for again. Keep the write-off entry and notice on file.
05What are the options for recovering unpaid invoices in the UAE?
Start with a formal demand and try to obtain a signed acknowledgement of the debt. For written, fixed and due debts, a payment order before the onshore courts is often the fastest route after at least five days' notice. Dishonoured cheques can be executed directly. Disputed debts go to an ordinary claim or arbitration, depending on the contract. Where the debtor is insolvent, creditor rights under the bankruptcy law apply. DIFC and ADGM contracts follow their own procedures.
06Does TRW & Co provide bookkeeping and reconciliation services?
The bookkeeping, reconciliation and accounting work is delivered with our group company A&A Consultancy. TRW & Co is a law firm and covers the legal side: credit terms and supply contracts, VAT disputes and FTA audits, supplier fraud and debt recovery. Where a registered tax agent must act before the FTA, or court representation is needed, we work alongside registered tax agents and locally licensed advocates.
Sources and official materials
- FTA Decision No. 13 of 2026 on verification before deducting input tax — Supplier and supply checks from 1 October 2026
- Federal Tax Authority: VAT — VAT guides and public clarifications
- Federal Tax Authority: Legislation — VAT Decree-Law, Executive Regulation and Tax Procedures Law
- Ministry of Finance: eInvoicing — E-invoicing phases and requirements
- Federal Decree-Law No. 50 of 2022 on the Commercial Transactions Law — Commercial books and five-year limitation between merchants
- Federal Decree-Law No. 42 of 2022 on the Civil Procedure Code — Payment order procedure
- IFRS 9 Financial Instruments — Expected credit loss on trade receivables
General information only, current as at 27 October 2026. It is not legal advice and does not create a lawyer–client relationship. UAE law differs between the onshore jurisdiction, the DIFC, ADGM and the free zones, and changes frequently; check current official sources and take advice on the facts of your matter.
