Creditor (Accounts Payable)
A creditor is a party the company owes money to – usually a supplier or service provider that holds an outstanding claim. In accounting, the creditor is also the subsidiary account that tracks all open and paid liabilities toward this business partner.
A creditor is a company’s obligee: a person or firm the business owes money to – in practice almost always a supplier or service provider whose invoice has not yet been paid. The term derives from the Latin „credere“ (to believe, to entrust) and describes the flip side of credit in the broad sense: whoever delivers goods or services on account and waits for later payment grants the buyer a supplier credit and thereby becomes the buyer’s creditor.
In accounting the term has a second, narrower meaning: creditor is also the subsidiary account on which all transactions with a specific supplier are recorded – incoming invoices, credit notes and payments. Together these creditor accounts form accounts payable, a subledger of financial accounting. It answers at any time the question: whom do we owe how much, and when is it due? In the ERP system the creditor is therefore both a master data record of the business partner and an account in accounting.
At a glance
- Creditor = an obligee of the company, usually a supplier with an open invoice
- At the same time the subsidiary account in accounts payable
- Accounts payable is a subledger to the general ledger account „trade payables“
- Its counterpart is the debtor (customer/obligor) in accounts receivable
- In the ERP linked to supplier master data, purchasing, invoice verification and the payment run
The creditor as a subsidiary account in accounting
In bookkeeping terms a creditor is a subsidiary account – an individual account per supplier that keeps its open liabilities transparent. Instead of posting each supplier directly to the large general ledger account „trade payables“, accounting maintains a separate creditor account per business partner. This keeps it traceable which invoices from which supplier are still open, which cash-discount deadlines are running and which payments have already been made.
The sum of all creditor accounts equals the balance of the associated control account in the general ledger. The creditor account is therefore not a standalone balance sheet account but a detailed view of a section of the liabilities. This two-tier structure – an aggregated general ledger account in the general ledger, granular subsidiary accounts in the subledger – is the basic principle of open-item (current) accounting.
Creditor master data
Every creditor is described by a master data record: name and address, VAT identification number, bank details, agreed payment terms (payment period, cash discount), a default expense account and the creditor number. This master data largely controls the later posting and payment processing automatically – for example which payment term applies or which bank account the transfer goes to. Clean creditor master data is therefore the prerequisite for error-free, efficient payment processing.
Link to the general ledger
When an incoming invoice is posted, a journal entry is created that records the expense or inventory on the debit side and the liability toward the creditor on the credit side – plus the input VAT. The creditor appears as a subsidiary account that is automatically carried through to the payables control account in the general ledger. Subledger and general ledger thus always stay reconciled without amounts having to be recorded twice.
How accounts payable works
Accounts payable accompanies the journey of an incoming invoice from recording to payment. After goods receipt the supplier invoice arrives and is checked: the classic three-way match compares invoice, purchase order and goods receipt on quantity, price and terms. If the details agree, the invoice is posted as an open item on the creditor account and the input VAT is claimed.
The open items yield the maturity structure of the liabilities. A payment run selects the due invoices, takes cash-discount deadlines into account and generates the payments – today mostly as a SEPA transfer. With the payment the open item is cleared; the creditor account afterward shows only the remaining liabilities. In addition, accounts payable provides analyses such as the open-item list, aging analyses and the basis for liquidity planning.
Distinction: creditor, debtor and supplier
Creditor and debtor are mirror-image terms. The creditor is the obligee the company owes money to – posted on the liabilities side as a payable. The debtor is the obligor, usually a customer who owes the company money – here a receivable arises on the assets side. From the perspective of the supplying company the same transaction is therefore a debtor posting, and from the perspective of the receiving company a creditor posting.
The creditor differs from the supplier in perspective: „supplier“ denotes the operational role in purchasing – whoever provides goods or services. „creditor“ is the accounting view of the same partner as soon as a liability exists. In many ERP systems supplier and creditor are one shared business-partner record with different roles. Not every creditor is necessarily a classic goods supplier: landlords, insurers, authorities or employees with expense reimbursements can also be kept as a creditor.
The creditor in the ERP system
In the ERP system the creditor connects purchasing and financial accounting into an end-to-end process. Supplier master data supplies terms and payment periods, purchasing generates orders, goods receipt confirms the delivery – and the incoming invoice is checked against these transactions and automatically posted as an open item to the creditor account. Because every step builds on the same master data, duplicate entry and media breaks are avoided.
The practical benefit lies in automation and transparency: payment terms from the master data control due dates and cash discount, the payment run bundles due liabilities, and analyses of stock, coverage and liabilities arise from a single data basis. Via an API or interfaces to DATEV, banks and document capture, the creditor process can be extended up to automated invoice recording – an important lever for the efficiency of accounting.
DACH specifics: charts of accounts, DATEV and GoBD
In the German-speaking region creditor accounts are embedded in the standard charts of accounts. In the DATEV charts of accounts SKR03 and SKR04 the number range 70000 to 99999 is usually reserved for creditors (supplier subsidiary accounts), while debtors are kept in the range 10000 to 69999. This convention eases data exchange with the tax advisor and the handover to DATEV, which in Germany serves as the quasi-standard for exchange with the tax advisor.
In addition, retention and orderliness rules apply: incoming invoices and the associated creditor postings are subject to the GoBD and must be stored in an audit-proof, unalterable and traceable manner. With the gradual introduction of the e-invoice in the B2B sector, the structured, electronic processing of creditor documents gains further importance – an ERP system must be able to receive, verify and archive the formats in a GoBD-compliant way.
Example
Example: a trading company posts a supplier invoice
A mid-sized wholesaler sources goods from a regular supplier. The supplier is set up in the ERP as a business partner with creditor number 70140 – including bank details and the payment term „30 days net, 2% cash discount for payment within 10 days“.
After goods receipt the invoice for EUR 5,950 gross arrives. The ERP reconciles it in the three-way match against purchase order and goods receipt and posts it: EUR 5,000 goods receipt and EUR 950 input VAT on the debit side against EUR 5,950 liability on creditor account 70140 on the credit side. The invoice appears as an open item with due date and cash-discount deadline. In the next payment run the system recognizes that the cash-discount deadline is still running, deducts the 2% and transfers EUR 5,831. The open item is cleared, and the creditor account shows no more balance for this invoice.
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