A creditor is a natural or legal person who supplies goods or services to a company on a credit basis. This means that the company does not pay for the goods delivered or services rendered immediately, but incurs a liability to the creditor which is settled at a later date. Creditors are therefore also referred to as creditors in accounting, as they are entitled to payment from the company. These liabilities are shown on the company's balance sheet as current or non-current liabilities, depending on the agreed payment term. The management of creditors is crucial for a company's liquidity and financial stability.
The word “creditor” comes from Latin and is derived from the verb “credere”, which means “to believe” or “to trust”. A creditor is someone who places trust in another by supplying goods or services on a credit basis, i.e. without immediate payment. The term thus reflects the trust that the supplier or service provider places in the buyer that the latter will settle his debt at a later date. In business and finance, the creditor is therefore a central figure who ensures the financing and smooth flow of goods and services between companies.
Common creditors are suppliers and service providers who provide goods or services to a company on a credit basis. Here are some examples of typical creditors in different industries:
These creditors are critical to a company's business operations as they provide the necessary resources and services required for production, distribution and operations. The efficient management of creditors is therefore essential to ensure financial stability and continuity in business operations.
This table provides a clear and concise presentation of the differences between debtors and creditors, including their definitions, balance sheet items, posting accounts, payment flows and their respective importance in the company context.
| Criterion | Debtors | Creditors |
|---|---|---|
| Definition | Customers or business partners who owe the company money | Suppliers or service providers to whom the company owes money |
| Balance sheet item | Assets (receivables) | Liabilities (payables) |
| Example | Customers who have purchased goods or services on account | Suppliers who have delivered goods or services on account |
| Posting account | Trade receivables | Trade payables |
| Debit/credit | Debit (debtor account) | Credit (creditor account) |
| Payment flow | Money flows to the company | Money flows from the company |
| Risk management | Monitoring the creditworthiness of customers, dunning | Monitoring payment deadlines, utilization of Cashbacks and rebates |
| Goal | Revenue through debt collection | Cost management and liquidity planning |
| Importance | Generating sales and liquidity | Ensuring the supply of goods and services |
The accounts payable target refers to the period of time that a company has agreed with its suppliers or service providers within which invoices for goods delivered or services rendered must be paid. It is an important aspect of the business relationship between a company and its suppliers, as it clearly defines the terms of payment and provides planning security for both parties.
Accounts payable targets vary depending on the industry, market conditions and individual agreements between the company and suppliers. Typical accounts payable terms are
The accounts payable target influences various aspects of Corporate Management and planning:
A well-managed accounts payable target helps to secure a company's financial stability, optimize its liquidity and maintain stable business relationships with suppliers.
Important terms for creditor
| Term | Definition |
|---|---|
| Creditor | Supplier or service provider who supplies goods or services to a company on a credit basis. |
| Liability | Financial obligation of a company to a creditor that must be settled at a later date. |
| Receivable | The creditor's claim to payment for goods delivered or services rendered. |
| Payment term | The period within which the liability to the creditor must be settled. |
| Revolving Credit | Short-term credit line granted by a creditor to a company, often to bridge liquidity bottlenecks. |
| Supplier credit | Credit granted by a supplier to a customer in the form of a payment term. |
| Accounts payable | Department or function within a company that deals with the administration and posting of liabilities to creditors. |
| Invoice receipt ledger | List of all incoming invoices from creditors, used for control and tracking purposes. |
| Cashback | Price reduction granted by a creditor if an invoice is paid within a certain period of time. |
| Credit note | Document that represents a correction or refund of amounts already invoiced. |
| Credit rating | Assessment of the creditworthiness of a company by a creditor. |
| Credit period | The average amount of time it takes a company to settle its debts to creditors. |
| Due date | The date on which a liability must be settled. |
| Reminder | Reminder letter from the creditor to the debtor that a payment is overdue. |
| Delayed payment | A situation in which a company fails to settle its liabilities on time. |
| Liquidity | The ability of a company to pay its current liabilities on time. |
| Balance sheet | Financial report that shows the assets, liabilities and equity of a company at a specific point in time. |
| General ledger | Central accounting ledger in which all business transactions of a company are recorded chronologically. |
| Creditor number | Unique identification number assigned to a creditor in a company's accounting system. |
| Purchasing department | Department within a company that is responsible for purchasing goods and services and often negotiates with creditors. |
This table provides a compact overview of the most important terms relating to creditors and their definitions.
The accounts payable term, also known as the payables term or payables turnover, indicates how long a company needs on average to settle its liabilities to suppliers. It is an important indicator of a company's liquidity management and payment habits. The days payable outstanding is measured in days and can be calculated to assess the company's efficiency in dealing with its liabilities.
The vendor term is calculated as follows:
The following applies:
Assuming a company has an average accounts payable of 50,000 euros and an annual cost of sales of 300,000 euros, the accounts payable term would be calculated as follows:
Accounts payable term = (50,000 / 300,000) x 365 = 60.83 days
In this case, the accounts payable term is therefore approx. 61 days.
The accounts payable term is a decisive factor in a company's Financial Management. It indicates how long a company needs on average to settle its liabilities to suppliers.
The following diagram provides an overview of what the vendor term influences.
Here is a more detailed explanation, of what the vendor term influences and how.
A longer accounts payable term means that the company has more time to settle its liabilities, which is positive for liquidity. It indicates that the company is able to finance its liabilities for longer without paying interest.
A longer term may indicate that the company has negotiated good payment terms with its suppliers.
However, a very long accounts payable period could also have negative aspects, such as a potential deterioration in relationships with suppliers, as they may be delayed in receiving their payments.
An accounts payable term that is too short may indicate that the company is paying its invoices too quickly and therefore not making the best use of its liquidity.
The optimal accounts payable term varies depending on the industry and the individual agreements with suppliers. It is important to find a balance where the company manages its liquidity effectively without jeopardizing relationships with suppliers. Regularly reviewing and analyzing accounts payable terms helps companies optimize their payment strategies and ensure they remain financially healthy.
Accounts payable is an essential function in a company's finance and accounting system. It deals with the administration and posting of liabilities to suppliers and service providers. This table provides a compact overview of the central tasks of Accounts Payable and their importance for a company's Financial Management.
| Task | Description |
|---|---|
| Recording and posting | Checking, account assignment and recording of incoming invoices in the accounting system. |
| Reconciliation of orders | Comparison of invoices with orders and deliveries. |
| Payment processing | Preparation, execution and monitoring of payments to suppliers. |
| Account reconciliation and maintenance | Regular reconciliation of vendor accounts and clarification of differences. |
| Reporting and analysis | Preparation of reports and analysis of payables to support liquidity management. |
| Master data management | Maintenance and updating of supplier master data. |
| Complaints and reminders | Processing of complaints, returns and reminders. |
| Compliance and documentation | Compliance with guidelines and proper documentation of all vendor-related processes. |
Accounts receivable are a special category in accounting that occur when a creditor, usually a creditor of the company, exceptionally becomes a debtor. This happens when the company makes a payment to a creditor that puts the creditor in a debit (debtor) position. Here are some cases in which creditors with debit balances can arise:
In accounting, creditors with debit balances are treated as receivables and recorded accordingly. They appear on the assets side of the balance sheet because they represent a receivable of the company from the creditor. These items must be carefully monitored and managed to ensure that the company either recovers the corresponding amounts or can offset them against future liabilities.
The business relationship between a creditor and a debtor entails various risks for the creditor, particularly with regard to the debtor's ability and willingness to pay. Various hedging measures can be taken to minimize these risks. This table provides a compact overview of the potential risks to which a creditor may be exposed and the corresponding measures to hedge against these risks.
| Risk | Description | Hedging Measure |
|---|---|---|
| Payment default | debtor cannot settle liabilities. | Credit assessment, credit insurance, collateral |
| Late payment | Delayed payment beyond the payment term. | Contract design, dunning, discount agreements |
| Credit default risk | Customer is unable to settle debts due to financial difficulties. | Credit insurance, collateral, factoring |
| Currency risk | Exchange rate fluctuations in international business relationships. | Currency hedging |
| Concentration risk | Dependence on a few large debtors. | Diversification, credit assessment |
| Fraud risk | Fraudulent intentions of the debtor. | Creditworthiness check, collateral, contract design |
A creditor is the supplier or service provider that provides goods or services to a company on a credit basis, while a debtor is the company that receives these goods or services and has a liability to the creditor in return.
The customer is a debtor, as he still owes the company (creditor) money for goods or services received.
Debtors are customers or business partners who have received goods or services and still owe a payment to the company.
Accounts receivable include all trade receivables from customers who have not yet paid.
You post debtors on the debit side of the debtor accounts and creditors on the credit side of the creditor accounts.
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