What Are Outstanding Debts?

From a simple concept, debt has become an entire financial institution. Companies and banks profit from providing debt management tools and strategies. The functions of these companies are rooted in outstanding debt: the dollar amount owed by one entity to another. It's a basic concept with numerous implications for people and businesses.

Definition

Outstanding debt is typically a one-time payment that's expected to be paid in a relatively short time. For example, once you pay off an outstanding balance on a credit card, you no longer owe any money until you use the credit card again. This is in contrast to regular monthly payments such as mortgages and cars, in which the payment process is drawn out.

Interest

Outstanding balances are subject to interest rates, more significantly so in case of missed payments. Interest is generally accrued on leftover outstanding balances on a regular basis -- usually monthly. Interest rates immediately and significantly increase from the first instance of a missed payment. Partial payments subtract from previously accrued interest first, then the capital outstanding balance. The leftover balance is then taken for the new accrued interest.

Personal Finance

The most common applications of outstanding debt are in credit card statements and quick loan payments. Outstanding debts are listed on a monthly basis on a credit card statement. This reflects all transactions made on the credit card until a cutoff point; purchases made after that cutoff point are not subject to interest until the following month. Quick loan payments come from early salary transactions and short-term loans. These often require a form of collateral in addition to a relatively high interest rate.

Business

Outstanding debts in business are mainly between a company and its suppliers. This is also called the short-term debt in the balance sheet. Interest terms vary depending on the contract between the company and the supplier; some suppliers may only charge interest once a year. Unlike personal finance, companies are encouraged to keep a line of debt active at all times. A healthy amount of debt maximizes all of the company's financial resources to increase production or expand the business.