Difference Between Debtor and Creditor

Creditors are those who extend the loan or credit to a person, and it may be a person, organization, or firm. In contrast, a debtorDebtorA debtor is a borrower who is liable to pay a certain sum to a credit supplier such as a bank, credit card company or goods supplier. The borrower could be an individual like a home loan seeker or a corporate body borrowing funds for business expansion. read more is one who takes the loan and, in return, has to pay back the amount of money within a stipulated period with or without interest.

Who is a Creditor?

The creditor can be defined as the person who gives a loan to any other person, and in return, he expects to get some kind of interest on the loan he is giving. The creditor provides this loan for a particular period, which can be small, like a few days or months, or can be a few years also. He extends credit to any other person. Thus by extending this loan or credit, he allows another person to repay this loan after a specific period that may be with or without interest. Generally, a creditor gives a loan or sells goods on credit. There are two types of creditors:

  • Personal creditors like family, friends, etc.;Real creditors like banks and financial institutions.

The creditor generally charges interest on the loan extended by him. Those people who sell goods on credit, also known as creditors, their main motive or interest is to enhance sales. A creditor is a party, person, or organization with a claim on the services of the second party. A creditor is a person or an institution to which money is owed.

The first party or the creditor has extended some property, money, or service to the second party with the assumption that the second party will return the equivalent amount of property, money, or service. The term creditor is usually used for short-term, long-term bondsBondsBonds refer to the debt instruments issued by governments or corporations to acquire investors’ funds for a certain period.read more, and mortgage loans. Creditors are mentioned as a liability in the balance sheetLiability In The Balance SheetCurrent Liabilities are the payables which are likely to settled within twelve months of reporting. They’re usually salaries payable, expense payable, short term loans etc.read more of an organization.

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Who is a Debtor?

A debtor can be defined as the individual or firm who receives the benefit without paying for it in terms of money or money’s worth immediately but is liable to pay the money back in due course of time. The debtors are shown as an asset in the balance sheet.

A debtor can also be defined as the person who owes money to the other person or institution, for example, any person who takes out a loan or purchases goods or services on credit. A debtor must pay back the amount he owes to the person or institution from which he has taken the loanLoanA loan is a vehicle for credit in which a lender will give a sum of money to a borrower or borrowing entity in exchange for future repayment.read more after the credit periodCredit PeriodCredit period refers to the duration of time that a seller gives the buyer to pay off the amount of the product that he or she purchased from the seller. It consists of three components - credit analysis, credit/sales terms and collection policy.read more is over. So once a debtor pays back the money, he gets released from the debt. When the person who has given a loan (the creditor) gets satisfied with lesser money, the debtor can get released by paying a lesser sum.

A debtor can be an individual, company, or firm. If this loan is taken from a financial institution, then the taker is called a borrower. If a loan is in debenturesDebenturesDebentures refer to long-term debt instruments issued by a government or corporation to meet its financial requirements. In return, investors are compensated with an interest income for being a creditor to the issuer.read more form, the one who takes the loan is known as the issuer. So we can say that the debtor receives the benefit without giving money or money’s worth. A debtor is an asset until the time he pays the money back.

Debtor vs. Creditor Infographics

Key Differences

  • Creditors are those who extend the loan or credit to a person, and it may be a person, organization, or firm. In contrast, a debtor is one who takes the loan and, in return, has to pay back the amount of money within a stipulated period with or without interest.Creditors have the right to offer discounts to the debtors, whereas the debtor receives the discount.While a creditor is shown as a liability on a firm’s balance sheet, a debtor is shown as an asset until he pays off the loan.Creditors are the parties to whom the debtors owe an obligation to pay back.Debtors have been mentioned under the accounts receivable categoryAccounts Receivable CategoryAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year.
  • read more, whereas creditors come under accounts payable.The creditors do not have the provision of doubtful debt created on them, whereas the provision of dubious debt is created on the debtors.

Debtor vs. Creditor Comparative Table

Conclusion

A particular business transactionBusiness TransactionA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company’s financial statements.read more has two parties involved- creditor and debtor. A creditor is the one who lends the money, whereas a debtor is the one who owes the money to the creditor. So there should not be any confusion between these terms. To ensure the smooth flow of the working capital cycle, a company must keep track of the time lag between the receipt of payment from the debtors and the payment of money to the creditors.

This article has been a guide to Debtor vs. Creditor. Here we discuss the top differences between debtor and creditor along with infographics and a comparison table. You may also have a look at the following articles –

  • Liability vs. DebtBad Debt ReserveDebt YieldDebt Covenants