creditor

Here we focus on the word creditor in the context of debt collection and general accounting practices.

What is a creditor?

The word creditor comes from the Latin word 'creditor', meaning 'to entrust'.

A creditor is a person, legal entity or company that is owed money or other assets by another company or individual. This other party is called the debtor.

Creditor is most often used as an accounting term and is often a company that has issued an invoice to a debtor on credit.

In a debt collection agency, the creditor is the party owed money by a customer, i.e. the debt collection agency's customer.

Types of creditors

In legal terms, there are two types of creditors: a simple creditor and a preferential creditor.

Most claims between a creditor and a debtor are often in the form of an unpaid invoice, also called an invoice claim. This is where a creditor has sold products or services for which a debtor has not paid. This claim is often a simple claim if only the invoice forms the basis of the claim. A creditor with a simple claim is considered a simple creditor.

In practice, this does not have much impact as long as the invoice is paid or the debtor does not go bankrupt or similar. These claims often have a limitation period of 3 years.

The opposite of an ordinary creditor is a so-called privileged creditor - a creditor with a privileged claim. A privileged creditor is legally prior to an ordinary creditor and thus typically prior to invoice claims and the like.

In bankruptcy or similar insolvency proceedings, it can be crucial that you are not just an ordinary creditor, but a preferential creditor. A privileged creditor stands before the ordinary creditors, for example in a bankruptcy where the estate is being settled.

It takes a lot more law to go from a simple creditor to a privileged creditor. This means that banks, lenders and the like are typically privileged creditors and their claims take precedence over an invoice claim.