UK Accounting Glossary
A person or organisation to whom money is owed by the entity.
A creditor is a party (e.g. person, organization, company, or government) that claims that a second party owes the first party some property or service. The first party, in general, has provided some property or service to the second party under the assumption (usually enforced by contract) that the second party will return an equivalent property or service. The first party is frequently called a lender, and the second party is frequently called a debtor or borrower.
In other words, your creditors are people to whom you owe money.
The term creditor is frequently used in the financial world, especially in reference to short term loans, long term bonds, and mortgages.
The term creditor derives from the notion of credit. In modern America, credit refers to a rating which indicates the ability of a borrower and likelihood to pay back his loan. In earlier times, credit also referred to reputation or trustworthiness.
A creditor is a person or entity that is owed money by another person or entity (i.e. debtor). For example, a bank or a company that gives out mortgage loans is a creditor. In this case, the creditor is loaning money in exchange for collecting interest payments on the principal. An investor that holds a bond is also considered a creditor. A creditor often looks at the credit rating or credit score of the debtor to determine how the terms of a contract or a loan should be structured (i.e. secured debt, collateral requirements provision, default provision, etc.) and priced (i.e. counterparty risk premium). By evaluating its counterparty risk and implementing mitigation measures, a creditor tries to maximize its return on investment while minimizing risk. In the event of default by the debtor, the creditor can pursue legal actions with the appropriate court to collect on the debt owed. When the debtor files bankruptcy, the creditor will receive a bankruptcy notification. At that point, if the creditor determines that the debtor could, in fact, repay, such creditor has the option to pursue a non-dischargeability action with the bankruptcy court. However, if the debtor’s inability to repay cannot be challenged, then the amount the creditor will recover, as well as when the creditor will recover it, will be based on the outcome of the bankruptcy proceeding.
The creditor always has a better memory than the debtor.
Generally, debtors must negotiate with each creditor separately, and they usually face the ordeal without prior advice.
A creditor of a partnership may sue any partner for the full amount of the debt.
Given the circumstances we are understandably reluctant to raise this matter with the creditor organisations.
The company is in trouble; If they don’t find a willing creditor, they will go bankrupt.
If one has to pay a creditor £200 in one year’s time, its not necessary to have £200 today.
As a creditor, my landlord is entitled to evict me if I don’t keep up with my rent.
By lending money to a customer, a bank becomes a creditor.
If Paul doesn’t keep up to date with payments due to his creditor, he may lose his house.
Although John was no longer able pay his creditor, he was at least somewhat relieved that the creditors could not repossess his house as his debt was unsecured.
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This glossary post was last updated: 23rd December 2018.