Unsecured creditor

An unsecured creditor is an entity that has extended credit to another party without first obtaining a collateral agreement. If the debtor is subsequently unable to pay, then the unsecured creditor will not be eligible for reimbursement until the claims of all secured creditors have been settled. At that time, the unsecured creditor will be paid on a pro rata basis along with all other creditors in the same classification. This will likely result in a partial payment or no payment at all.

A supplier typically issues trade credit without a collateral requirement, and so is classified as an unsecured creditor. Issuers of commercial paper do so without any collateral provision, so the buyers of these securities are also unsecured creditors.

Related Courses

Credit and Collection Guidebook 
Effective Collections