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NADefinition
A debtor is an individual or organisation that owes money to another party, typically as a result of borrowing funds or receiving goods or services on credit.
What it means
When a business or person takes out a loan, issues bonds, or agrees to pay a supplier at a later date, they become a debtor. The debtor is legally obliged to repay the amount owed under the agreed terms, which may include interest and repayment schedules.
Debtors can owe money to banks, lenders, suppliers, or other creditors.
Types of debtors
- Borrowers: Businesses or individuals with loans or credit facilities
- Trade debtors: Customers who owe payment for goods or services received
- Bond issuers: Companies that owe repayments to bondholders
Example
A company that has taken out a £250,000 loan from a bank is a debtor to that bank. A customer who has 60 days to pay an invoice is also a debtor until the invoice is settled.
Why debtors matter
- Allow businesses to access funding or flexible payment terms
- Affect cash flow and working capital management
- Are central to lending, credit risk, and collection processes
Important to note
If a debtor fails to meet repayment obligations, they may face penalties, legal action, or insolvency proceedings.
In simple terms, a debtor is the party that owes money and must repay it.
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