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A creditor is a party you owe money to. A debtor, on the other hand, is someone who owes you money. The difference between a creditor vs debtor lies in the direction of the payment.
In this article, we’ll explain the meaning of a debtor and a creditor, where they appear on the balance sheet, common payment terms, and how to manage them efficiently.
Table of contents:
| Attribute | Debtor | Creditor |
|---|---|---|
| Relationship | Customer | Supplier |
| Cash flow | Incoming | Outgoing |
| Balance side | Assets | Liabilities |
| Risk | Late payment | Fines or interest |
A debtor is a customer who still owes you payment. A creditor is a supplier to whom you owe money.
Here’s a handy mnemonic to understand the creditor debtor definition:
These terms are essential in financial management. They offer a clear picture of how much money you’re expecting to receive (debtors) and how much you still need to pay (creditors). Understanding the difference between a creditor and debtor helps keep your finances in order.
Debtors are listed under assets on your balance sheet. They represent money owed to your business and are therefore a form of expected income. Creditors are listed under liabilities—they represent amounts your business owes to others.
Example balance sheet:
| Assets | Amount | Liabilities | Amount |
|---|---|---|---|
| Bank | €5,000 | Equity | €10,000 |
| Debtors | €7,500 | Creditors | €2,500 |
| Inventory | €3,000 | ||
| Total | €15,500 | Total | €15,500 |
This overview makes the role of debtors and creditors in balance sheet accounting clear and easy to understand.
The average payment term for debtors in the UK is around 30 days, though in practice this often stretches to 40–45 days. These delays can restrict your business’s cash flow.
The terms for creditors are often similar. However, businesses may deliberately extend these to 60 days to maintain liquidity—this is especially common in B2B environments.
Efficiently managing your creditor vs debtor accounts is essential for financial health. Unpaid invoices can strain your cash flow, while late payments to suppliers can damage relationships or lead to penalties.
With Payt, you gain full control of your debtor and creditor process. You get a clear overview, automate reminders, and maintain personal communication with both customers and suppliers.
Benefits of using Payt:
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A customer is a A customer is a debtor. They’ve received a product or service but haven’t yet paid.. They’ve received a product or service but haven’t yet paid.
A supplier is a creditor. You’ve received goods or services from them and still need to pay.
Understanding the roles allows you to structure your accounts correctly. Debtors are money owed to you; creditors are money you owe. This distinction ensures better cash flow management.
It involves tracking outstanding payments and invoices—making sure you collect what you’re owed and pay what you owe on time. This boosts liquidity and business relationships.
You can initiate a reminder schedule or collections process. With Payt, you can automate follow-ups, offer payment plans, or escalate to debt recovery.
