What Is A Debtor?

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As individuals, there are certain times when we encounter emergencies. When we think of this word, one of the few descriptive words that come to mind is “life-threatening”. From accidents to forces of nature, we may have encountered them in or another. 

 

However, most of us will face emergencies of the financial kind. We may either be short on cash or our funds were lost. It happens all the time, and one way to remedy it is through borrowing money from someone we know and trust.

 

It is somewhat similar if you are in a company or business. There are certain times when you need more money than you usually have. For example, you need capital to establish your chosen venture. You cannot move any money without spending anything. It is often money, but there are other aspects of your life that you would be investing as well. 

 

Once you borrow any monetary support from another person or entity, then you are considered as a debtor. Whether it is just personal or from a business standpoint, it is still considered as a debt.

 

Can Borrowing Be An Advantage?

As someone who borrowed any money, it is your responsibility to pay it back in time. There might not be any legal repercussion since there is no law that states that you should be penalized for failing to clear it. However, it is going to affect your standing within the community. People in the business are notoriously into gossip. One failed attempt at a payment can lead to a lot of discourse regarding you and your company. Other entities might not even let you borrow on these grounds alone.

 

If you know that you do not have any power to pay for it, you need to inform the creditor as soon as possible. You can set up a payment scheme so that you can still cover for your debt even just little by little. If there is an interest, then you need to compute for that as well. As to how much will depend on the creditor. They do need to process this as legally as possible. 

 

If it is a personal debt, then you need to talk to the person about it and ask for an extension. There is nothing wrong with these scenarios since there are circumstances that are out of our control. For example, you cannot play anymore because you encountered a crisis or calamity.

 

As a debtor, you need to remember that your creditor can never jail you for debt unpaid. However, they can still claim payment in other ways. Your properties can be seized, and assets can also be liquidated to cover for the debt. These can also be used as collateral. 

 

Once you have already succeeded in paying for the borrowed money, then these assets and other properties will be returned to you. Otherwise, you may need to give them up for your name to be cleared. The law also protects your rights as a debtor, ranging from your privacy to integrity and ability to pay. However, this only covers third party collectors. 

 

How About The Creditor?

If you are a creditor, then you can collect the chargeable amount once the debtor tries to avoid it. You can use the option mentioned above of taking their properties as your own either through collateral or liquidation. 

 

If it is your employee, then you can take a part of his or her income to cover for the expenses. However, you need to have the consent of your employee to make these deductions. It is illegal to deduct without reason as well, and the state can do an investigation regarding this matter. Even if you are innocent, it will not look good for the company’s reputation. 

 

Final Thoughts

Whether you are a debtor or creditor, it is essential to settle these accounts as soon as possible. Do not wait for the deadline to come and pass. For the debtor, it will be more beneficial to you since your account will be cleared. Also, it will help you borrow again whenever you need it. On the creditor’s side, you can now use this financial gain for another venture. As long as you collect the debt legally, then there is nothing to worry about all of it.

 

For expert advice on how you can effectively manage your company’s current liabilities, feel free to get in touch with our highly-efficient team. Annette & Co. is always here to help! 

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Annette Ferguson

Annette Ferguson

Owner of Annette & Co. - Chartered Accountants & Certifed Profit First Professionals. Helping Online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.