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:
Secured creditor. This creditor is legally entitled to take certain borrower property and sell it in the event of a payment default.
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.
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.
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.