Debtor vs Creditor Role Difference + Example

What Are Debtors And Creditors?

Creditors are the current liabilities of the company, whose debt is to be paid within one year. They are called as current liabilities because they provide credit for a limited time and hence, they should be paid, shortly. Creditors allow a credit period, after which What Are Debtors And Creditors? the company has to discharge its obligation. But, if the company fails to pay the debt within the stipulated time, then interest is charged for delayed payment. In the normal course of business, goods are bought and sold on credit, which is not a new thing.

What Are Debtors And Creditors?

It’s the title of a person or company who owes money to another entity. If the money they owe is to a financial institution, i.e. a bank or insurance company, then the debtor will be called a borrower. If the debt owed is in the form of bonds or other securities, then the debtor is referred to as an issuer.

Policies Guiding Debt Collection Methods

In the case of Debtors, the discount is allowed by the company. On the other hand, in the case of Creditors, the discount is received by the company. Debtors are the assets of the company while Creditors are the liabilities of the company. Debtors come under the category of account receivable whereas Creditors come under the category of account payable.

What Are Debtors And Creditors?

The party that extends credit or lends money to another party is called the creditor while the receiving party is the debtor. “Rights” describe what is owed to the creditor, such as the right to repayment of a loan or the right of a landlord to enter property if the rent is not paid. “Duties” describe the required actions of the debtor, such as the duty to pay taxes or to repay loans. However, those roles may be expanded under some state and federal statutes. For example, under federal law, a creditor has the right to collect on a debt, but has the duty to report accurate information to credit reporting agencies.

Definition of Creditor

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