Creditor - What is a creditor?
A creditor is an entity, a company or a person of a legal nature that has provided goods, services, or a monetary loan to a debtor
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A term used in accounting, ‘creditor’ refers to the party that has delivered a product, service or loan, and is owed money by one or more debtors. A debtor is the opposite of a creditor – it refers to the person or entity who owes money.
Once a creditor has delivered the goods/service, the payment is expected at a later date (typically agreed upon beforehand).
To put it simply, the debtor-creditor relationship is complementary to the customer-supplier relationship.
Different kinds of creditors
Generally speaking, a creditor is a supplier: a person, organisation or other entity that sells a product or service as their business. This in essence means that all retailers are creditors, because they sell products or services.
However, use of the term ‘creditor’ is generally only used in accounting, to refer to instances where there is a longer term customer/supplier relationship.
Another example of a debtor/creditor relationship is if you take out a loan to buy your house. Then you as the homeowner are a debtor, while the bank who holds your mortgage is the creditor. In general, if a person or entity have loaned money then they are a creditor.
Usually, each creditor has a specific agreement with their debtors about the terms of payment, discount offerings, etc.
Depending on whether the creditor is an individual or entity, a type of collateral might be required. Collateral provides a type of guarantee in the event that the amount owed cannot be paid. Some types of creditors can also place restrictions on assets.
For example: if Company A takes out a small business loan from the Bank, the Bank requires that collateral be provided before the loan is approved. This collateral could come in the form of a car, equipment used in the company, property, or jewelry, for example.
The Bank could also place a liens on the assets of the company, which means that Company A would not be able to sell any assets before they pay the amount owed to the Bank.
This type of legal action provides security to the creditor in the event the debtor is unable to pay.
Creditor and Debitoor
As a creditor, it’s important to follow-up on payments owed, especially if they become overdue. Debitoor allows you to view and track payments owed to your company.
Easily send reminder letters to customers who are overdue in their payments and include a penalty fee if you wish.