Who is debtor?

A debtor is a person or entity that owes money or is otherwise obligated to pay or perform some other required action.

A debtor is a person or firm that owes money. The debtor has a legal obligation to pay money in return for supplies of goods or money provided by the creditor. For example, if a company borrows $1,000 from a bank, the bank is the company’s creditor. The company is a debtor for a bank.

Debtors can be individuals, firms, corporations, financial institutions, or banks. A “debtor” is a customer who purchases goods or services and must pay the supplier in return. Some companies calculate average debtor days to check the availability of cash on hand. The size of the debtor collection period is dependent on industry practice.

As customers like to buy goods on credit, this will not increase cash flow immediately, but it will help increase sales. Also, customer loyalty will increase. Hence, it is general market practice to provide goods or services on credit.

Did you know?

Debtor relations directly impact cash flow, and it is important to measure the liquidity of the business as your creditors will ask for money too. Team Nimblefincorp can help you calculate your debtor days to generate more efficient cash flow. You can even get free consulting. Try it out today.