Debtor days and creditor days: how to calculate and improve them

Debtor days are the average number of days it takes your customers to pay you after you have sold to them on credit. The British Business Bank describes them as the amount of time it takes for your customers to pay you, and a debtor as a person or firm that owes money to your business.

You may also see the figure called days sales outstanding, or DSO. It matters because every day an invoice stays unpaid is a day you have already paid for the stock, wages or materials behind it. The longer customers take, the more of your own money is tied up in the sale.

A common way to calculate debtor days is to divide trade debtors by credit sales and multiply by the number of days in the period: debtor days = trade debtors ÷ credit sales × days in the period. Trade debtors is the money customers owe you at the end of the period, taken from your balance sheet. Credit sales is turnover from sales you invoiced rather than took payment for on the spot.

Using total turnover instead of credit sales is a frequent shortcut. It is fine if almost everything is sold on credit, but it makes the figure look better than it is if you also take cash or card payments. Whichever you choose, use the same method each time so the trend means something.

A single year-end balance can mislead if your sales are seasonal or lumpy. Averaging the debtors figure over several month ends gives a steadier picture, and your accountant can tell you which method suits your accounts.

Creditor days are the average number of days you take to pay your suppliers. The British Business Bank defines a creditor as a person or firm to whom you owe money, and describes creditor days as the time it takes you to pay your suppliers.

The usual calculation mirrors the one for debtors: creditor days = trade creditors ÷ credit purchases × days in the period. Trade creditors is what you owe suppliers on the balance sheet. Some accountants use cost of sales as the bottom line when purchases are not shown separately, so ask which version is used in your accounts.

Together they show how long your cash is out of your hands: if customers pay you more slowly than you pay suppliers, you are funding the difference from your own pocket. The British Business Bank puts the principle plainly: the longer your cash flow cycle, the more capital your business needs.

Stock holding is the third piece. Together the three make up the cash flow cycle that our guide to working capital describes in more detail.

A good debtor days figure is one that sits close to the payment terms you actually offer and is stable or falling over time. There is no single number that suits every business, because what is normal depends on your sector and who you sell to.

Compare the figure with your own terms first. If you ask for payment in 30 days and your debtor days are 60, customers are paying a month late on average, or a few large invoices are dragging the figure up. GOV.UK says an agreed payment date must usually be within 60 days for business transactions, so terms far beyond that are worth questioning.

Then watch the trend. A figure that creeps up quarter after quarter is an early warning that credit control is slipping or a major customer is struggling, long before the bank balance shows it.

You reduce debtor days by invoicing sooner, making your terms clear and chasing overdue invoices promptly. Each of these is free, so they come before finance.

• Invoice as soon as the work is done or the goods are delivered, not at month end.
• State your payment terms on the quote, the contract and every invoice.
• Check new customers before you offer credit, and set a limit for each.
• Chase on the day an invoice becomes overdue, and keep a note of every contact.
• Make paying easy, with bank details and a payment link on the invoice.
• Talk to a slow payer early; a short call often clears an invoice faster than another reminder.

The law is on your side too. For late business-to-business payments you can charge statutory interest of 8% plus the Bank of England base rate, unless your contract sets a different rate, and claim fixed compensation of £40, £70 or £100 depending on the size of the debt. Our guides to late payment interest and setting payment terms cover how to use those rights without damaging a relationship.

Manage creditor days by agreeing longer terms with suppliers openly, never by simply paying late. The British Business Bank advises that you always negotiate this with your suppliers before making any increases.

Stretching suppliers without asking costs you more than it saves. Late payment can lead to lost discounts, tighter terms or a supplier that stops trading with you, and it is poor practice when you complain about the same behaviour from your own customers. Aim for terms that match how your customers pay you, and keep to them.

Finance can help when customers reliably pay slowly and the gap is structural rather than a one-off. Invoice finance advances money against invoices customers have not yet paid, which turns long debtor days into cash sooner, for a fee.

A revolving credit facility or a short-term loan can also cover a gap that comes and goes. All of these cost interest or fees and are subject to status and lender criteria. Finance covers a timing gap in a sound business; it does not fix slow collection or a loss-making trade. Compare options in our invoice finance guide and the directory of invoice finance lenders.

Capzy is a credit broker, not a lender, and is paid by the lender. If your debtor days are stretching cash, we can introduce your business to lenders that offer invoice finance and other working capital products, and set out what comes back so you can compare it.

You can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and any offer is subject to status and lender criteria. We do not give accounting or tax advice, so ask your accountant to check the figures and the method behind your own debtor and creditor days.