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Although it may seem that they are the same, suppliers and creditors are not the same.
It is necessary to know how to differentiate what is a supplier, what is a creditor and the differences between them, in addition to the importance of registering them correctly in accounting.
What is a provider
A supplier is the company that is in charge of supplying others with the resources that it has. In this way, it delivers these resources to others so that they can develop their economic or commercial activities.
These resources can be services or goods already ready for sale and also raw materials or elements that are destined for further transformation.
Therefore, both a company that sells oranges to a greengrocer or a juice factory can be considered suppliers. And also the juice company that sells to supermarkets for end customers.
If we continue with this example, the juice factory will have suppliers of oranges, other fruits and sugar, among others.
What is a creditor
A creditor is a company that sells an asset or lends money to a company in exchange for payment.
The creditor has the right to claim the payment or obligation that has been agreed on the date established for this purpose. If the debtor does not comply with his obligation, the creditor may demand an asset owned by the debtor as compensation. The most common are a property or a vehicle.
The most common example of a real creditor is the contract with a mortgage guarantee between a bank and a person. It establishes the conditions under which the loan must be returned and the possibility of the bank keeping the house in the event of non-payment.
Types of creditors
The types of creditors there were the following:
- Personal creditor. This type of creditors arise when the obligation is agreed with family or friends. It is enforceable even if there is no document that justifies the debt. However, legally the obligation does not exist and no legal action can be taken against the defaulter.
- Actual Creditor. Unlike the previous case, in this type of creditor a legal contract is signed between the parties, where the conditions and rights of claim by the creditor are established.
In addition to this main classification, there are other types of creditors, as many as there are types of obligations and debts payable. For example, we could talk about the pledged, mortgage, unsecured or even hereditary creditor.
Differences between supplier and creditor
The main difference between a supplier and a creditor is the type of goods or services that it provides to its customers.
The suppliers are necessary for the activity of their clients and the creditors supply other goods and services that are not necessary for production, that are not directly related to the activity of the company.
Why differentiate suppliers and creditors in accounting
In accounting terms, the difference is in the way the payments are recorded and how they are allocated.
Suppliers are recorded as purchases on the company’s books and creditors as expenses.
When receiving supplies from suppliers it is important to keep track of inventory, invoices and everything related to purchasing. Instead, creditor payments are allocated based on the type of expense, for example, maintenance.
The benefits of differentiating suppliers and creditors in the company’s books are:
- Possibility of having an up-to-date inventory.
- Correctly record expenses, which will help track overall gains and losses.
- Better reflection of the movements of assets and the financial picture of the company.
- Allocate assets and expenses more accurately, allowing for more efficient operations.
How to post the movements of suppliers and creditors
In the accounting of a company there are also differences between the movements of suppliers and those of creditors.
Vendor Accounting
The supplier account is 400, which will increase for credit and decrease for debit. Supplier account 400 will be charged to subgroup 60 accounts and will be charged:
- For the formalization of the debt in accepted draft bills, with credit to account 401.
- For the total or partial cancellation of the company’s debts with suppliers, with credit to subgroup 57 accounts.
- For the rebates that correspond to the company, granted by suppliers, with credit to account 609.
- For discounts not included in the invoice granted to the company for prompt payment by its suppliers, with credit to account 606.
- For returns on purchases made, with credit to account 608.
- For containers and packaging returned to suppliers that were charged to the invoice by them, with credit to account 406.
Creditor accounting
The following will be paid for the receipt of the goods or services charged to the accounts of subgroup 62, and will be charged:
- For the formalization of the debt in accepted draft bills, with credit to account 411.
- For the total or partial cancellation of the company’s debts with creditors, with credit to the corresponding accounts of subgroup 57.
As we have seen, there are important differences between supplier and creditor. The main one is the type of goods or services they provide, but it is also important to differentiate suppliers and creditors in the company’s accounting.
Further information
This article is part of our service Business consulting. Visit this section where you will find all the useful information on this topic, including a complete guide on How to start a business in Spain as a foreigner.
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