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supplier and creditor difference

What is the difference between supplier and creditor?

Difference between supplier and creditor

Do you know the difference between supplier and creditor? Both figures are key when keeping the accounting of a company up to date.

However they seems to be similar in nature, but both are completely different figures.

At the accounting level, a series of differences are established between a supplier and a creditor.

Let’s explore. 

What is a Supplier?

A supplier is that natural or legal person from whom we buy a product or service directly related to the activity carried out by the company.

That is, the supplier supplies the merchandise that is going to be commercialized, or that is necessary for the company’s production process.

What is a Creditor?

A creditor is a legal person from whom we buy products or services that, although they are necessary for the regular activity of the company, is not related to the action.

In other words, the creditor supplies the company with a good or service that enables it to function. A creditor is any entity that lends money or extends credit to another entity. 

Examples of Suppliers and Creditors

To get a clear understanding between supplier and creditor, we are going to show you some practical examples.

Suppliers are those entities that offer raw materials or resources for production processes and the sale of the final product.

For example, in a clothing factory, the supplier would be the entity that supplies us and provides us with threads, fabrics or any material necessary for the manufacture of the garments. Or in the case of a cafeteria, it would be the entity that provides the coffee.

On the other hand, we have the creditor, who is in charge of supplying different types of resources that are used for the operation of the company.

Following the example of a clothing factory and a cafeteria, the creditor would be the entity that provides electricity, running water or telephone services that serve to meet the standard orders or commissions received by the company.

Also, common examples are legal assistants or consulting, cleaning or security and surveillance services.

Suppliers and Creditors: what impact do they have on the company?

In order to keep company’s accounting up to date, it is crucial to know how to distinguish between suppliers and creditors.

According to the General Accounting Plan, within the chart of accounts, suppliers are classified in Group 4 (Creditors and debtors) for commercial operations. Specifically, within subgroup 40. While creditors fall within subgroup 41.

In this way, depending on which group each creditor expense belongs to, we must reflect it in the corresponding accounting account: 400 for suppliers and 410 for creditors.

Usually, these purchases involve periodic expenses and to register them automatically; it is essential to have a billing software or dedicated a accounting expert to keep your financial records up-to-date.

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By : December 10, 2020
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