What is a debtor

In financial terminology, a ‘debtor’ refers to an entity or individual who owes funds to another party, known as a creditor. If your business makes a sale, then you become the creditor, and the purchaser is designated as the debtor.

The concept of a debtor is the converse of a creditor, a term that might be more commonly recognised.

Typically, a debtor is someone who has acquired goods or services through a credit arrangement (be it via invoicing or a credit card) or has received a loan, thus incurring an obligation to pay back the borrowed amount.

What are some examples of a debtor?

Should an entity or individual procure an item with payment deferred through invoicing, that party assumes the role of the debtor until the outstanding amount has been paid. Debtors can span a diverse spectrum of entities, ranging from companies and organisations to private individuals.

In instances where a debtor does not meet their financial commitments, the creditor is entitled to send payment reminders or engage in debt collection procedures to reclaim the owed funds. Persisting non-payment may escalate to legal avenues such as insolvency proceedings or the compulsory sale of the debtor’s assets.

Read more about debit and credit.