Creditor definition
/What is a Creditor?
A creditor is an individual or entity that is owed money. Typically, the creditors of a business are its suppliers , which have provided it with goods and services, and in exchange expect to be paid by an agreed-upon date. Or, the business owes money to a lender , which also expects to be repaid at a later date. The amounts owed should be reported on the firm’s balance sheet as either accounts payable or loans payable. Accounts payable are usually classified as current liabilities , while loans may be classified as either current or long-term liabilities , depending on their scheduled repayment dates.
Examples of Creditors
Examples of creditors are suppliers and lenders. There are several varieties of creditor, which include the following:
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Secured creditor . This creditor is legally entitled to take certain borrower property and sell it in the event of a payment default .
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Unsecured creditor . This creditor is not legally entitled to take any borrower property in the event of a default. This is a common creditor classification for large and well-funded public companies, where the risk of default is near zero.
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Senior creditor . A senior creditor will be paid before junior creditors in the event of a borrower's bankruptcy . These creditors may have accepted a lower interest rate on the funds loaned to the borrower, because they have a higher likelihood of payment.
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Junior creditor . A junior creditor will only be paid after senior creditors have been paid in full, if there is a borrower bankruptcy. These creditors may have consented to being positioned after more senior creditors in exchange for receiving a higher interest rate on the funds loaned to the borrower.
