What is Debtor days?

Debtor days is a financial ratio that measures the average number of days it takes for a company to collect payment from its customers for goods or services sold on credit. It is a key metric for managing cash flow and assessing the effectiveness of a company’s credit control and collection policies.

How many Debtor days is 61 days?

For example, if a company has average trade receivables of $5,000,000 and its annual credit sales are $30,000,000, then its debtor days is 61 days. The calculation is: ($5,000,000 Trade receivables ÷ $30,000,000 Annual credit sales) x 365 = 60.83 Debtor days Debtor days is also known as the debtor collection period.

What does a lower debtor day mean?

A lower debtor day shows the company’s earlier cash collection from customers and that the accounts receivables are good. In addition, it means it is not essential to be written off as bad debts. If there is an upward movement in the debtor ratio, more cash is needed as working capital to fund the business.

How many Debtor days does company X have?

Company X has GPB 10,000 in trades receivables and GPB 50,000 in annual credit sales. Using the Yearly End Debtor Days Formula, the calculation would look as follows: Debtor Days = (10,000/50,000) x 365 = 73. Using this debtor days ratio, Company X can comfortably give their clients up to 73 days to pay their invoices.