What are creditors?

Who counts as a creditor?

Anyone you owe at a given moment. Trade creditors are suppliers whose invoices you have received but not paid. Other creditors include HMRC for VAT, PAYE and corporation tax accrued but not yet due, credit card balances, loans, and a director who has lent the company money.

The balance sheet splits them by when they fall due. Creditors due within one year are current liabilities and sit against your current assets to show whether you can meet what is coming. Anything due later, such as the long end of a loan, is shown separately.

Creditors are not a sign of trouble. Buying on 30-day terms is normal, and the balance simply reflects it. The problem is not knowing the figure, because then the bank balance looks like money you can spend when much of it is already spoken for.

What does it look like in practice?

At the end of June a café has £6,000 in the bank. Its creditors are: the coffee supplier £1,800 due on the 15th, the wholesaler £650 due at month end, VAT for the quarter just ended £2,100 due on 7 August, and PAYE for June £900 due on the 22nd.

Total creditors are £5,450. Of the £6,000 in the bank, £550 is actually free. The owner who reads only the bank balance orders a new fridge in July and is overdrawn by August.

The creditors figure, updated as bills arrive and are paid, is the difference between knowing that and finding out.

How are creditors different from debtors?

Creditors are what you owe; debtors are what you are owed. They are the two sides of trading on credit. A healthy business watches both: enough coming in from debtors, soon enough, to pay creditors as they fall due. When debtors pay slowly and creditors are paid on time, the gap is funded from your bank account, which is why profitable businesses still run out of cash.