What are debtor days?
The debtor days ratio quantifies how quickly cash is being collected and accumulated by debtors. Also known as a debtor collection period, it is the amount of time that it takes to collect all trade debts.
Where have you heard about debtor days?
If you or your company have ever owed or been owed money, it’s likely you’ll have considered debtor days in some form. In the simplest terms, it’s a way of working out how long it will take for a debt to be paid, assuming there are consistent payments.
What you need to know about debtor days.
A smaller amount of time that taken to collect debts indicates the efficiency of a company and a longer period is an indicator of problematic trade debtors or less overall efficiency. A lower period could, however, mean that credit terms are too harsh and customers may go on to find suppliers with more relaxed payment terms. The debtor day ratio is calculated by dividing the sum owed by a trade debtor to the yearly sales on credit and multiplying it by 365. For example, if debtors are $30,000 and sales are $300,000 then the debtors collection ratio will be: ($25,000x365)/$200,000 = 46 days approximately.
Find out more about debtor days.
To find out more about debtor days, take a look at our page on debtors.