Updated: Feb 25
Before we start, let's broadly distinguish Creditors and Debtors.
Creditors are those who extend the loan or credit to a person, an organization, or a firm whereas Debtors are those who takes the loan and in return has to pay back the amount of money within a stipulated time period with or without interest.
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Now, let's take a closer look on their roles.
Creditors can be used to describe a person who gives a loan to any other person and in return, he supposes to get interest on the loan he is giving.
There are two types of creditors:
Personal creditors like family, friends, etc.
Real creditors like banks and financial institutions
Therefore, a creditor could be a person as well as an institution.
The term creditor could be used for short-term loans, long-term bonds, and mortgage loans. Creditors are mentioned as a liability in the balance sheet of an organization.
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.
Here is a table of the top 6 differences between a creditor and a debtor:
In sum, creditors are those who lend money and debtors are those who owns money. To ensure the smooth flow of the working capital cycle, a company must keep a track of the time lag between the receipt of payment from the debtors and the payment of money to the creditors.
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