Part of our roles as lifetime accountants is to keep you — whether you’re a client of ours or not — as informed as humanly possible about the intricacies of managing your finances. And something that we think a lot of people get confused about is the role of a creditor versus a debtor. So we’re going to do our best to clear some of that up for you.
So what’s a creditor?
Well, a creditor is an entity, a company or a person of a legal nature that has provided goods, services or a monetary loan to a debtor. A creditor is a supplier: a person, organization or other entity that sells a product or service as their business.
What’s a debtor?
A debtor is the opposite of a creditor. It’s the person or entity that owes money to the creditor.
How does the relationship work?
In plain English, the debtor/creditor relationship is pretty much the same dynamic as the customer-supplier relationship. One of the most tangible, recognizable examples of the debtor/creditor relationship is when someone takes out a loan to buy a house. Then, the new homeowner becomes the debtor and the bank that holds your mortgage becomes the creditor.
Can businesses be creditors?
Yes. In fact, nearly every business is both a creditor and a debtor, since businesses extend credit to their customers and pay their suppliers on delayed payment terms. The only situation in which a business or person is not a creditor or debtor is when all transactions are paid in cash.
How can an accountant help you manage these roles?
The term creditor is frequently used in the financial world — especially in reference to short-term loans, long-term bonds and mortgage loans. In law, a person who has a money judgment entered in their favor by a court is called a judgment creditor.
If you have any questions about how these dynamics work and how a Broussard Poché CPA can help you navigate your financial balances, give us a call.