Simply put, a creditor is an individual, business or any other entity that is owed money because they have provided a service or good, or loaned money to another entity. As these entities loan businesses money to finance their ventures - be it expansion, or otherwise - they become creditors as those businesses are required to repay to money borrowed. Following on from that, a trade creditor is an entity which has supplied the materials used in producing a product.
For example, a brick supplier would be owed money from a building contractor as they has supplied the bricks used to build a project. Depending on your own business and how your model works, you may find yourself as being a the creditor to a debtor.
A debtor is an individual, business or any other entity that owes money to another entity because they have been provided with a service or good, or borrowed money from an institution. There are two types of debtors to be aware of as a business owners - i staff loans and ii trade debtors.
An example of a debtor is a haulage company who borrows money from a bank to invest in a new fleet of vehicles. They become a debtor at the point of borrowing as the company will subsequently owe the borrowed money and any interest to the bank.
A staff loan is a preferential loan given to an employer by an employee, usually when the interest on said loan is lower than the specified interest rate in financial institutions. Depending on the nature of your business you may find that you have both debtors and are, yourself, a debtor.
Customers who do not pay for products or services up front, for example, are debtors to your business, which serves as the creditor in this scenario. Similarly, you are in debt to your suppliers if they have provided you with goods which you are yet to pay for in full. Being a creditor for another business can be considered an asset, demonstrating financial strength to your business, whilst excessive debt counts as a liability. Striking the sweet spot between these is where many businesses operate successfully.
In case the debt is in the form of a loan from a financial institution, the debtor is referred to as a creditor, and the debtee is referred to as an issuer in the form of securities, like bonds. Legally, anyone who files a voluntary petition for bankruptcy declaration is often called a debtor.
Failure to pay a debt is no crime. With the exception of such bankruptcy cases, debtors may prioritise their debt repayments as they wish, but if they fail to uphold their debt terms, they can face fines and penalties, as well as a decrease in their credit score. In addition, the creditor can bring the debtor to the court regarding the matter. The term 'debtor' refers to individuals as well as other firms, banks, lending companies, and more.
If anyone owes payment for goods or services given to an entity or a company, the person owing may be called a debtor. In general, a debtor is a customer who has purchased a good or service and, therefore, owes the payment in return to the supplier.
For example, if you take a loan to buy your house, then you are a debtor in the sense of borrower, while the bank holding your mortgage is considered to be the creditor. Generally speaking, if you borrow money, then you are a debtor to the loan provider. Products IT. To ensure the smooth flow of the working capital cycle, a company must keep track of the time lag between the receipt of payment from the debtors and the payment of money to the creditors.
This article has been a guide to Debtor vs. Here we discuss the top differences between debtor and creditor along with infographics and comparison table.
You may also have a look at the following articles —. Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Free Accounting Course. Login details for this Free course will be emailed to you. Forgot Password? Article by Madhuri Thakur. Difference Between Debtor and Creditor Debtors refer to the party to whom the goods are supplied or sold on credit by another party and the former owes money to the latter, whereas, a creditor is a party that supplies the product or services to another party on credit and has to receive the money from the latter.
Who is a Creditor? There are two types of creditors: Personal creditors like family, friends, etc. Leave a Reply Cancel reply Your email address will not be published. Please select the batch. Cookies help us provide, protect and improve our products and services. By using our website, you agree to our use of cookies Privacy Policy. A person or organization that has the liability to return the money to the person or institution which has extended the loan is called the debtor.
A person or an organization which has extended the loan and whom the debtor is liable to pay back the money;. The debtors have a debit balance In a General Ledger, when the total credit entries are less than the total number of debit entries, it refers to a debit balance.
A debit balance is a net amount often calculated as debit minus credit in the General Ledger after recording every transaction.
The creditors have a credit balance to the firm.
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