Debtor Days Calculator

Revenue you have earned and money you do not have

You did the work. You sent the invoice. As far as your profit and loss account is concerned, that sale happened and the revenue is yours. Your bank balance disagrees, and will keep disagreeing until the customer decides to pay.

Debtor days measures the length of that disagreement. It is the average number of days between raising an invoice and the money arriving, and it explains something that puzzles a lot of business owners: how a company can be profitable on paper and short of cash every single month. Two firms with identical revenue and identical margins can have completely different bank balances, and this is usually why.

Three figures, and a word about "total sales"

Year end trade debtors is what customers owed you at the end of the period, the accounts receivable figure from your balance sheet. Total sales is your sales for that period. Total days in financial year is normally 365, and it is there so you can run the calculation over a quarter or a month by entering 90 or 30 instead.

That middle input deserves a note, because it affects how you read the answer. Strictly, this calculation is about credit sales, meaning sales where you invoiced and waited. If some of your revenue is paid immediately, by card at the till or up front online, those sales never became debtors and including them in the denominator drags the average down.

How much does that matter? If only 70 percent of the sales in the example below were on credit, the true collection period would be around 64 days rather than 44.9. That is a substantial difference. So if you invoice for essentially everything you sell, which is the case for most business-to-business firms, enter total sales and the figure is sound. If you have a meaningful mix of immediate payments, enter only the credit portion of your sales and the answer will describe what is actually happening to your invoices.

44.9 days

Say customers owed you 320,000 at the year end, against 2,600,000 of sales over 365 days.

Your debtor days figure is 44.9. On average, an invoice takes about forty-five days to turn into money in your account. Whether that is good, bad, or alarming depends entirely on what you told your customers when you sent it, which is the next section and the most useful thing on this page.

Measure it against your terms, not against an average

Published benchmarks exist. The overall median sits somewhere around the mid-fifties in days, with business-to-business firms typically running thirty to sixty, retail far lower because cards settle almost immediately, and construction and professional services often well above sixty because ninety-day terms are normal in those trades.

Useful context, but there is a sharper test available, and it takes one division. Divide your debtor days by the payment terms you actually offer. If your terms are net 30 and your figure is 44.9, that ratio is 1.50, meaning invoices take half as long again as you agreed.

Read on that scale, roughly 1.0 to 1.15 is excellent, since no set of customers pays perfectly on time. Up to about 1.3 is acceptable and normal. Past 1.5 you have a problem that compounds, because every month of growth adds more cash to the pile you are waiting on. And the beauty of this test is that it cannot be argued with by comparison. A firm on ninety-day terms collecting in ninety-five days is doing well. A firm on fourteen-day terms collecting in forty-five is not, even though the second number looks better against the median.

What the waiting actually costs

The gap between your terms and your collection period has a price, and it is worth putting a number on it because the number tends to be larger than expected.

In the example, 2,600,000 of annual sales works out at about 7,123 a day. Collecting in 44.9 days against terms of 30 means about 14.9 days of unnecessary waiting, and 14.9 times 7,123 is roughly 106,000 permanently sitting in customers' bank accounts rather than yours. Not once. Permanently, because as one invoice clears another takes its place.

That is money you have to finance from somewhere: an overdraft, a loan, your own capital, or simply doing less than you could. And the compounding is the cruel part, since a growing business with slow collection needs ever more working capital just to keep trading, which is how companies manage to run out of money in the middle of a good year.

Turn it round and the opportunity is obvious. Shaving ten days off collection in this example releases about 71,000 of cash, without a single extra sale, without borrowing, and without anyone agreeing to anything. It is the cheapest money available to most businesses, which is why collection deserves considerably more attention than it usually gets.

Most late payment starts in your own office

The instinct when this number is high is to blame customers. Sometimes that is fair. Far more often the delay was built in before the customer ever saw the invoice.

The single biggest cause is invoicing late. Every day between finishing the work and sending the bill is a day added to your collection period for no reason whatsoever, and businesses that batch their invoicing to month end are routinely adding a couple of weeks to every single invoice. Moving to invoicing as work completes is the cheapest, fastest improvement most firms can make.

After that comes invoice accuracy. A wrong amount, a missing purchase order number, or the wrong contact means the invoice sits in a queue until someone queries it, and a few minutes of checking prevents weeks of delay. Then there is the credit decision itself. Extending payment terms to a customer who was never going to pay promptly guarantees the problem rather than creating it, and for larger customers you can often look up their published payment record before you agree to anything.

None of that is about chasing harder. It is about removing friction you control. Chasing matters too, and consistent, unembarrassed follow-up on a schedule works better than an occasional apologetic email, but it is the second lever rather than the first. And once you have your collection figure, set it beside your days payable. The gap between how fast you pay and how slowly you are paid is the part of the cycle you are personally funding.

Questions people ask

How do you calculate debtor days?

Divide trade debtors by sales for the period, then multiply by the number of days in that period. Debtors of 320,000 against sales of 2,600,000 over 365 days gives about 44.9 days.

What is a good figure?

Compare it to your own payment terms rather than to an average. Dividing your debtor days by your terms gives a ratio, where roughly 1.0 to 1.15 is excellent and anything past 1.5 is a genuine cash flow problem.

Should I use total sales or credit sales?

Credit sales, strictly. If you invoice for nearly everything you sell, total sales is fine. If a meaningful share is paid immediately, use only the invoiced portion, or the figure will understate how long collection actually takes.

What reduces debtor days fastest?

Invoicing the moment work is finished rather than at month end, and making sure each invoice is correct first time. Both are within your control and usually cost nothing. Consistent follow-up and tighter credit checks on new customers do the rest.

References

The calculation follows standard working capital analysis. Published payment records can be checked at the source below.

1. UK Government, Department for Business and Trade. Payment practices and performance reporting (large companies' reported average payment times, searchable by company). gov.uk
2. Brealey, R. A., Myers, S. C., and Allen, F. Principles of Corporate Finance (credit management, receivables, and working capital). McGraw-Hill.