Debtor – What is a debtor?
‘Debtor’ is a term used in the accounting world to refer to a party that owes money to a company or individual
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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 complementary to the customer-supplier relationship.
Types of debtors
Generally speaking, a debtor is a customer who has purchased a good or service and therefore owes the supplier payment 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 only 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 holding your mortgage is considered 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.
What can be done about debtors
If a debtor has an outstanding payment that has passed the due date and/or the standard payment window (30 days in the UK), there are a number of steps that a creditor (an individual or a business) can take in order to collect the money owed.
There is a generally accepted escalation of actions, beginning with a friendly reminder and, if it continues in the most extreme cases, filing in the claims court. Read more about what to do about overdue payments in our article: ‘6 tips for when your customer doesn’t pay your invoice’
Debtors and Debitoor
In Debitoor invoicing software, your invoice list will automatically update to show you which payments from debtors are overdue, indicated by a due date that will become red and underlined. You can quickly filter your invoices to view only those that are unpaid and the overdue invoices will be easily viewed.
Debitoor also gives you the tools to follow-up with debtors who owe money from your invoices in a professional manner by creating and sending reminder letters in just a couple of clicks. You can even add a late fee, which will be automatically calculated and included in the total amount due, restated on the reminder.