Debtors vs Creditors

While purchasing goods on credit a buyer may not make the payment immediately instead both the seller and buyer may enter into a lending & borrowing arrangement. This allows delayed payments for current invoices. Even though payment terms are mutually agreed upon there is still a difference between debtors and creditors.

Typically such agreements involve a short interest-free credit period during which the buyer can make its payment. Debtors and creditors may be defined as follows;

Debtors – In a business scenario, a person or a legal body who owes money to another party is called a debtor. For a business, the amount to be received is usually a result of a loan provided, goods sold on credit, etc.

Example – Unreal corp. purchased 1000 kg of cotton for 100/kg from X to use as raw material for their clothes manufacturing business. The total invoice amount of 100,000 was not paid by Unreal corp. In this example, Unreal corp. is a debtor for X.

Creditors – In day to day business a person or a legal body to whom money is owed is known as a creditor. For a business, the amount to be paid may arise due to repayment of a loan, goods purchased on credit, etc.

Example – Unreal corp. purchased 1000 kg of cotton for 100/kg from X. The total invoice amount of 100,000 was not received immediately by X. In this example, X is a creditor for Unreal corp.

Difference Between Debtors and Creditors (Table Format)

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