A debtor is someone who owes money to the business. This is a normal situation in the operational management of a business (especially at industries). For example, when companies sell goods these generally are not paid immediately by the client who will pay posteriorly according to some payment schedule. But sometimes these clients don’t pay on schedule or the business can try to recover this owed money before the time schedule. Therefore, funds can be obtained by collecting the owed money from the business debtors. This is a short-term source of financing.
- No additional cost in getting this financing as it is part of the businesses’ normal operations
- There is a risk that debts owed can go bad and not be repaid