What is a Creditor

Standard

A Creditor is an accounting term used to define the party who has delivered a product or service. In essence a creditor is a supplier who sells products or services as their business.

A creditor is the party to whom money is owed. A creditor is the party who has provided some property or service to another an individual or a company in return for an equivalent property, service or money. Suppliers, service providers, lenders and government bodies may all be considered creditors where they have provided some property or service and the amount remains unpaid.

Creditors are classified as current liabilities as the money owed is to be repaid within a relatively short timeframe that does not exceed one year. Creditors identify a credit period in which the money owed is to be repaid else interest charges or other penalties may be applied.

In a balance sheet creditors appear under the heading Trade and Other Payables. Creditors may also be broken down into the following sub-categories:

Secured Creditors: is a creditor that has the benefit of preferential rights in the disposal of secured assets. In most instances the holder of the security seize, sell and discharge the debt. They are paid first.
Unsecured Creditors: is a creditor that does not have the benefit of any security. If the party who owes money to the creditor enters into administration then unsecured creditors are paid pro-rata after the claims of all secured creditors are satisfied.

Please note: Issued by Leigh Barker Gordon and West Pennant Hills. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance.
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