A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. 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 and service. The second party is frequently called a debtor or borrower. The first party is called the creditor, which is the lender of property, service, or money.
Creditors can be broadly divided into two categories: secured and unsecured.
- A secured creditor has a security or charge, which is some or all of the company’s assets, to secure the debt owed to him. This could be, for example, a mortgage, where the property represents the security.
- An unsecured creditor does not have a charge over the company’s assets.
The term creditor is frequently used in the financial world, especially in reference to short-term loans, long-term bonds, and mortgage loans. In law, a person who has a money judgment entered in their favor by a court is called a judgment creditor.
The term creditor derives from the notion of credit. Also, in modern America, credit refers to a rating which indicates the likelihood a borrower will pay back their loan. In earlier times, credit also referred to reputation or trustworthiness.
In accounting presentation, creditors are to be broken down into 'amounts falling due within one year' or 'amounts falling due after more than one year'...
The financial statements presentation is this:
Creditor's power during insolvency
In the UK, once an Individual Voluntary Arrangement (IVA) has been applied for, and is in place through the courts, creditors are prevented from making direct contact under the terms of the IVA. All ongoing correspondence of an IVA must first go through the appointed Insolvency Practitioner. The creditors will begin to deal with the Insolvency Practitioner and readily accept annual reports when submitted.
Under the Companies Act 2006, a company's creditors may apply to the court for an order summoning a meeting of the creditors or some of the creditors who fall into a specific category, in order to consider a compromise or "arrangement" between the company and its creditors. If a majority representing 75% in value of the creditors or class of creditors present and voting either in person or by proxy at the meeting agree a compromise, the meeting may apply to the court for the compromise to be enforced. The same provision would apply to members (shareholders) of a company seeking to make an arrangement with the company. The Corporate Insolvency and Governance Act 2020 makes similar provision where a compromise has been proposed between creditors or members and a company which "has encountered, or is likely to encounter, financial difficulties".
- Accounts payable
- Accruals and deferred income
- Bank loan and Overdrafts
- Bill of exchange payable
- Creditor's rights
- Debenture loans
- Individual voluntary arrangement
- Intra-group accounts owed
- IOU (I Owe You)
- Payments received on account
- Proposed dividends
- Trade creditors
- O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 264. ISBN 0-13-063085-3.CS1 maint: location (link)
- "Insolvency for creditors". Australian Securities and Investments Commission. Australian Securities and Investments Commission. March 23, 2016.
- UK Legislation, Companies Act 2006, Part 26: Arrangements and Reconstructions: General, accessed 15 August 2020
- UK Legislation, Corporate Insolvency and Governance Act 2020, Schedule 9: Arrangements and Reconstructions for Companies in Financial Difficulty, accessed 15 August 2020