A creditor is a party your business still owes money to, usually a supplier or a service provider. Buy on account and you create a debt to that creditor, to be settled within the agreed term. In the accounts those obligations sit on the liabilities side of the balance sheet, in what is often called accounts payable. In this article you can read what a creditor is, how it differs from a debtor, which payment rules apply and how to handle the invoices your creditors send you.
Contents
What is a creditor?
A creditor is a party your company still has to pay, in most cases a supplier or a service provider. When you take delivery of goods or services on account, a debt to that creditor arises which you settle within the agreed term. In bookkeeping these obligations are recorded together as creditors, or accounts payable, on the liabilities side of the balance sheet. Knowing who your creditors are and when they expect payment is what tells you how much money has to leave the business, and when.
Creditor versus debtor: what is the difference?
Creditor and debtor are mirror images. A creditor is a supplier you have to pay; a debtor is a customer who has to pay you. That is why creditors appear under liabilities on the balance sheet and debtors under assets.
| Creditor | Debtor | |
|---|---|---|
| Who | Supplier (you have to pay) | Customer (has to pay you) |
| On the balance sheet | Liability | Asset |
| Administration | Accounts payable (purchase invoices) | Accounts receivable (sales invoices) |
| Your aim | Pay on time, keep the supplier relationship good | Get paid on time, keep cash flow healthy |
Read our explanation of debtors as well, where the same relationship is described from the other side.
Payment terms and the rules
The relationship between creditor and debtor is regulated. Within the European Union the late payment rules set thirty days as the default term for business-to-business transactions unless the parties agree otherwise, with limits on how far that term can be stretched. National implementations differ, so check what applies where your company is registered. Paying on time is not only a legal matter: late payment is one of the quickest ways to lose priority with a supplier.
Alternatives to buying on account
Buying on account, and therefore taking on a creditor, is not the only option:
- Payment in advance. You pay before delivery, which avoids the debt and keeps the bookkeeping simple.
- Leasing. You pay a fixed amount per month for the use of an asset, which spreads the cost.
- Factoring. You sell your receivables to a third party and get paid sooner, which is about the debtor side rather than the creditor side.
Creditors in your administration
Every creditor sends you purchase invoices, and each of those has to be checked, coded and paid. That processing work is what you can automate. TriFact365 reads the invoice, matches it to the right creditor in your administration and prepares a booking proposal with a general ledger account and VAT code per line. After your check the journal entry goes to your accounting package, where the payment run happens. The typing disappears, your payables overview stays current, and you keep the decision about what gets posted.
Read how that runs from receipt to journal entry, how it fits into the invoice side of purchasing, or how you route invoices past a budget holder first with approval routes for invoices.
Frequently asked questions
A creditor is a supplier or service provider your business still owes money to for goods or services already delivered. As long as the invoice is unpaid, that party remains your creditor and the amount sits under accounts payable.
A liability. The amount you still have to pay appears on the liabilities side of the balance sheet. A debtor is the opposite and counts as an asset.
A creditor is the party; accounts payable is the ledger position where the amounts owed to all creditors are recorded together. One creditor can have several open invoices within accounts payable.
Thirty days is the default for business-to-business transactions under the European late payment rules, unless you agree something else. National implementations differ, so check the term that applies in your country.
Scan and recognition software reads the invoice, matches the creditor and prepares a booking proposal per line. You confirm it, and the journal entry goes to your accounting package. That removes the retyping while the payment run stays in your own package.
