Debtor – What is a debtor?
Definition: Debtor is an expression used in the accounting world to specify a party who owes money to a company or individual.
A debtor can be an entity, a company or a person of a legal nature that owes money to someone else – your business for example. If you have one or more debtors, that makes you a creditor. To put it simply, the debtor-creditor relationship is complimentary to the customer-supplier relationship.
Different kinds of debtors
Generally speaking, a debtor is a customer who has purchased a good or service and therefore owes their supplier money in return. Therefore, on a fundamental level, almost all companies and people will be debtors at one time or another. For accounting purposes, customers/suppliers are referred to as debtors/creditors.
Debtor does not just refer to a customer of goods and services, but also to someone who has borrowed money from a bank or a lender. If you take out a loan to buy your house for example, then you as the homeowner are a debtor, while the bank who holds your mortgage is the creditor. In general, if you have borrowed money then you are a debtor to the loan agency.
Usually, each debtor has a specific agreement with their creditor (supplier/lender) about the terms of payment terms, discount offerings, etc.