Legal Definitions - account debtor

An account debtor is the individual or entity that owes a payment or other obligation to another party, where that obligation arises from specific types of commercial transactions. These transactions typically involve:

• A right to payment for goods or services provided (referred to as an "account").
• A document that combines a monetary obligation with a security interest in specific goods (known as "chattel paper").
• Various other forms of intangible property, such as licenses, royalties, or payment streams from certain contracts (categorized as "general intangibles").

In simpler terms, if someone has a right to receive money or performance from you because of one of these commercial arrangements, you are considered the account debtor. This term is particularly relevant when the party *owed* the money uses that right to payment as collateral for their own loan.

Examples:

• Example 1 (Account - Unpaid Invoice):

  A small business, "Bright Ideas Marketing," provides consulting services to a client, "Innovate Corp." Bright Ideas Marketing sends Innovate Corp an invoice for $10,000 for the completed work, with payment due in 30 days.

  Explanation: In this situation, Innovate Corp is the account debtor. They owe the $10,000 payment to Bright Ideas Marketing, and this obligation arises from an "account" (the right to payment for services rendered, represented by the invoice). If Bright Ideas Marketing were to use this outstanding invoice as collateral for a loan from a bank, Innovate Corp would still be the account debtor, owing the payment to Bright Ideas Marketing (or potentially to the bank if the right to payment was assigned).

• Example 2 (Chattel Paper - Equipment Financing):

  "Green Acres Farm" purchases a new tractor from "Farm Equipment Dealers" and finances the purchase through a loan agreement with the dealership. The agreement specifies monthly payments and grants the dealership a security interest in the tractor until the loan is fully repaid.

  Explanation: Green Acres Farm is the account debtor. Their obligation to make monthly payments is evidenced by "chattel paper" – the loan agreement that combines their monetary debt with the dealership's security interest in the tractor.

• Example 3 (General Intangible - Software Licensing Fees):

  "Tech Solutions Inc." licenses its proprietary software to "Global Enterprises" for an annual fee of $50,000. Global Enterprises uses the software and is obligated to pay the annual licensing fee as per their contract.

  Explanation: Global Enterprises is the account debtor. They owe the annual licensing fee to Tech Solutions Inc., and this obligation stems from a "general intangible" – the right to payment under a software license agreement.