The term debtor originates from the Latin word ‘debate’, which means no one.

A debtor is a phrase used in accounting to describe an entity or person who owes money to another person, organisation, or business. A debtor may be an individual, a corporation, or another legal person who owes money to someone else – such as your company. You are a creditor if you have one or more debtors.

To put it another way, the debtor-creditor relationship is an extension of the customer-supplier relationship.

Debtors are recorded as assets in the balance sheet under the section current assets, and these are also known as accounts receivables.

Example of debtors

  • Trade debtors are people who owe money to other people.
  • Loans to staff

In general, a debtor is a customer who has bought a product or service and owes a bill to their supplier. It means, almost all businesses and individuals are or will be debtors at some point because everybody makes transactions as a consumer in some way.

How does an individual become a debtor?

A ‘debtor’ can be an individuals, corporations, banks, loan firms, government, among other things. Debtor is a person or entity who owes money to another person or an entity for goods sold or services rendered.

What options do you have for dealing with debtors?

If a debtor fails to make a payment by the due date and/or the normal payment window, a creditor (either a person or a business) may take various steps to recover the money owed.

There is a widely agreed escalation of conduct, starting with a polite reminder and progressing to filing a lawsuit in the claims court if the problem persists.

For instance, ABC ltd sells iphones and tablets of £200,000 to XYZ on 60 days credit. ABC ltd is a debtor till it repays XYZ ltd the full £200,000.

Debtors and repayments

Debtors are presented in the financial statements based on the duration of their debt repayments. Short-term debtors, for example, are those whose unpaid debt is due within a year.

Long-term debtors, on the other hand, owe sums that are due for more than a year. Under the company’s long-term assets, the sums are reported as long-term receivables under non current assets.

The credit terms beyond a year are uncommon. Normal credit terms are between 15 days to 2 months.

Debtor vs. Creditor

MeaningAn entity or person who owes money to another person.An entity or person who owes money from another person.
NatureThe debtors have a debit balance.The creditors have a credit balance.
Payable or recievable?It is a recievable balance.It is a payable balance.
Balance sheet presentationForms part of the current assets on the balance sheet.Forms part of the current liabilities on the balance sheet.
Alternate nameAccounts receivable.Accounts payable.
OriginOriginated from latin word ‘debate’, meaning no one.Originated from the latin word ‘credited’, meaning to loan.