The Difference Between Available and Ledger Balance

A lot of terms are used by financial institutions such as banks to differentiate between different elements of their business. Let’s look at two – the available balance and the ledger balance.

These terms may be confusing if you’re not familiar with them, but the differences between ledger balance and available balance are very important, especially for businesses dealing with larger transactions than individuals are used to.

What is available balance ?

The available balance is so called because it is the amount available for withdrawal at any given moment. Any financial activities such as customer deposits or withdrawals will change the available balance immediately, even if they haven’t been fully processed yet. The available balance thus changes every time the account holder makes any financial transaction.

What is ledger balance ?

The ledger balance is the remaining balance at the end of the business day, as well the starting balance at the beginning of the next business day, including all the transactions that were fully processed the previous day. The ledger balance only changes at the end of each business day according to whichever deposits or withdrawals have been processed and completed during the day. Any incomplete transactions will not be included in the ledger balance, even though they will appear in the available balance.

Why the difference is important

Financial institutions rarely transfer funds immediately following a transaction, because cheques, wire transfers and other deposits and payments can take certain periods of time before the funds are released to the intended recipient. 

A business that receives many cheques, for example, would have to wait several days after depositing them to know how much money they made that day and how it has improved their balance. Such a business could do all the maths themselves and figure it out, but the available balance does it for them so they know how much money they have in total once all outstanding incoming and outgoing payments have been processed.

This difference is important to understand because you should usually only make payments according to how much is in your ledger balance. The ledger balance is the actual amount you have, while the available balance is the potential amount you have once all as yet unprocessed transactions have been completed.

How to calculate your ledger balance

You don’t have to wait for the official bank statement to update to calculate your ledger balance. Many modern payments are immediate and you can get an overview of your ledger balance any time you like by following these three steps:

• Note the opening balance 

• Add all credits

• Subtract all debits

Note the opening balance

Take a note of your ledger balance at the very beginning of the business day. This will be your opening balance, which you will use to calculate your updated ledger balance later on.

Add all credits

Any payments you are certain will be processed successfully can be added to the total of the opening balance. This could be payments from customers or deposits you have made yourself. 

Subtract all debits

Finally subtract all debits that you have made during the day, which presumably you will be certain of their departure from your account. 

Once the credits have been added to the opening balance and the debits subtracted, you are left with your current ledger balance. 

We Can Help

If you’re interested in discovering more about the difference between available balance and ledger balance, or any other aspect of your business and its finances, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.