Meaning of Debtor Creditor

Definition of Debtors

A debtor is defined as a person, company, or entity that has received goods or services on credit but has not yet paid for them. The amount owed is usually recorded as an asset in the books of the creditor and a liability in the books of the debtor. Debt obligations may arise from loans, purchases made on credit, or other similar financial arrangements.

Types of Debtors

Debtors can be broadly categorized into two types:

Individual Debtors

These are personal borrowers who owe money. Individuals may take out loans for various reasons, such as buying a house, education, or starting a business. Personal debts may also arise from credit card bills or unpaid loans from friends or relatives.

Business Debtors

In the corporate world, businesses may owe money to suppliers, banks, or other financial institutions. Business debtors can include accounts receivable, where a company has sold goods or services on credit but has not yet received payment.  Debtors play a crucial role in a company’s financial health. They affect both cash flow and profitability.  

Definition of Creditor

A creditor is defined as an individual, business, or institution that extends credit to another party. When goods, services, or loans are provided on credit, the recipient becomes a debtor, while the provider is considered a creditor. In simple terms, creditors are the parties who expect to be repaid for the money or services they have provided.

  Types of Creditors

Creditors can be classified into two main categories:

Individual Creditors

These creditors are people who lend money to others, either informally or through financial institutions. For example, a person who lends money to a friend or family member becomes a creditor in that situation.

Business Creditors

Business creditors include companies, financial institutions, or organizations that provide credit to others. Businesses typically provide credit in the form of accounts payable to other businesses or individuals. For example, a supplier who provides goods to a retailer on credit becomes a business creditor.  Creditors are essential to the functioning of financial systems. They help stimulate economic activity by providing resources to businesses and individuals.