What is a Debtor

Standard

As very few businesses receive cash for goods and services they provide or pay cash for expenses they incur, common business practice is to sell goods and services on credit to another party who pays the business some time later.

Thus debtors are those parties who owe money to another party.

Debtors are customers such as a company or an individual or an agency etc who have purchased either goods or services and therefore owe money to their supplier which is paid at a later date. The supplier is commonly referred to as the creditor.

Debtors have a legal obligation to pay an amount to the supplier under the terms of the agreement between both parties and should the debtor fail to fulfil their obligation the supplier may seek recourse in an appropriate jurisdiction. Thus before the supplier permits goods and services to be released to the debtor the supplier reviews and makes a judgement call as to the credibility and financial status of the debtor to pay under the agreed terms.

While it is possible to maintain a manual system to track debtor movements there now exists a series of commercially available software packages that will generate invoices, maintain a track of any amounts owing, update individual debtors upon receipt of payment and automatically determine the total value of all outstanding debtors. Thus a robust filing system is required to maintain a track of those who owe money to enable prompt follow up of any overdue amounts owed to a business.

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.