A creditor is an entity, company or person that has provided goods, services or a monetary loan to a debtor.
Keep track of money your company is owed with online invoicing software. Invoice for free with SumUp Invoices.
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, which is typically agreed upon beforehand.
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 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’s a long-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, discounts, etc.
Creditor security
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 jewellery, for example.
The Bank could also place a lien 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.
Creditors and SumUp Invoices
As a creditor, it’s important to follow up on payments owed, especially if the payments become overdue.
SumUp Invoices allows you to view and track payments owed to your company. You can sort and filter your invoice list to show only unpaid/overdue invoices, and also create account statements for your customers to outline how much they have paid and any balance owing.
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FAQs
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.
What is a creditor invoice? ›
Creditor Invoice is used to enter Supplier invoices into the system. These invoices could be for parts or service suppliers - for example National Parts, Telstra or Energy Australia.
What do you mean by creditor? ›
Creditors are individuals or entities that have lent money to another individual or entity. They typically charge interest and the money is owed back to them. For example, a bank lending money to a person to purchase a house is a creditor.
What is considered a creditor? ›
A creditor is someone (or an entity) to whom an obligation is owed. Most commonly, the obligation owed is an obligation to pay money for some prior services or to pay off a loan.
What is a creditor in Accounts Payable? ›
People or organisations to whom you owe money are called creditors. A creditor is a supplier or vendor who will normally invoice you for goods or services supplied to you. At some stage after this you will pay the invoice. The process of managing creditors is often referred to as Accounts Payable.
Is creditors a receipt or payment? ›
Creditor meaning: This is money that is owed by the business. For example, where the business has been invoiced for goods or services but has not made payment.
Does creditor mean vendor? ›
Creditors and Vendors both are of same meaning. When Vendors are having Debit balance that means you return the goods to vendor, in this case you raised the DR. Note against the vendor. Or adjust the amount in next invoice.
What are the three types of creditors? ›
Examples of common creditors
There are several types of creditors, such as real creditors, personal creditors, secured creditors and unsecured creditors.
What are some examples of creditors? ›
Here are some common creditors you may encounter:
- Friend or family member you owe money to.
- Financial institution, like a bank or credit union, that extends you a personal loan, installment loan, or student loan.
- Credit card issuer.
- Mortgage lender.
- Auto dealer that extends you a car loan.
WordReference English Thesaurus © 2024. Synonyms: lender, lessor, mortgager, banker, money lender, mortgage lender, recipient , beneficiary, payee , heir , grantee, customer , trustee.
Creditors often make money by charging interest to the person or organization borrowing the money. There are different types of creditors that vary based on the type of credit they issue.
How do I know if I am a creditor? ›
They describe a relationship where one party owes money to another party. The debtor is the party that owes the money (debt), while the creditor is the party that loaned the money. For example, if Jay loans Reva $100, Reva is the debtor and Jay is the creditor.
Why are creditors important? ›
Creditors play an important role in international trade through the supply of goods and services to international traders. Credit is a key driver of international trade growth and innovation as it allows business success goods and services which they can trade with and pay for later.
Is a creditor a liability or expense? ›
Liabilities are the debts owed by the firm. The main types of liabilities are creditors (money owed by the business to suppliers of goods and services), bank overdrafts and bank loans.
Is a bill payable a creditor or debtor? ›
A bill given to a creditor is called bill payable. A bill payable on demand is called Time bill.
Is an invoice a debit or credit? ›
A purchase invoice is neither a debit or credit, but rather an agreement between a buyer and seller to determine the amount of goods/services that have been provided and the total amount due from the buyer.
Is creditor the same as vendor? ›
Accounts payable refers to money owed by a business to its vendors (creditors). Any vendor with an outstanding account balance is considered a creditor. These are vendors whom you expect to pay money to, and are treated as a current liability.
What does debtor invoice mean? ›
'Debtor' is a term used in the business world to refer to a party that owes money to a company or individual. Learn how to manage overdue invoices with invoicing software.
What is the difference between a credit bill and an invoice? ›
Key differences between invoice and bill
An invoice consists of a unique number, whereas a bill does not consist of a unique number. Invoices are frequently used in credit transactions, whereas bills are often used for cash transactions completed in one go.
What is the difference between a debit invoice and a credit invoice? ›
A debit note is a notification and request for a debt obligation to be paid. A credit note is issued to correct errors or changes made to an existing invoice or order. The issuance of both types of notes helps to maintain accounting records and provide clarification on the negative or positive amount owed.
