Working it out
- Debtors. The total customers owe you right now.
- Credit sales. What you invoiced in the period. Leave out sales paid at once, such as cash or card at the till.
- Days in the period. 30 for a month.
- Calculate. Debtors divided by credit sales, times the days.
An illustration
The figures are invented to show the arithmetic. They are not what any business should expect.
| Debtors | R180 000 |
| Credit sales for the month | R120 000 |
| Debtor days | 45 |
| Your payment terms | 30 days |
Customers are taking 15 days longer than you asked.
This is an average. A few very late invoices can hide behind it.
Read it against your own situation
- Your payment terms. How far above them are you?
- Last month. Is the number rising or falling?
- What you owe suppliers. If customers pay in 45 days and suppliers want payment in 30, you fund the gap from your own cash.
What a change could be revealing
| The signal | It could be revealing | Check | You could |
|---|---|---|---|
| Above your terms | One large customer may be paying late | Debtors by customer. Is one name most of the overdue amount? | Speak to them before the next invoice and ask for a payment date |
| Rising slowly across many customers | Invoices may be going out late, or chasing may have slipped | Delivery dates against invoice dates | Invoice on delivery and follow up on the due date |
| One or two invoices very overdue | A dispute or a query may be holding up payment | Unresolved queries or credit notes | Resolve it, or write it off |
| Rose after a period of growth | New customers may be on longer terms | The terms on your newer accounts | Price for the wait, or change the terms |
| Very low | Most customers may pay up front, or cash sales may be inside the credit sales figure | What your credit sales figure includes | Use invoiced sales only |
Try it
Ask your accounting software for the age analysis. It lists what each customer owes and how many days each invoice is overdue. It shows who is behind the average.
Questions people ask
What should my payment terms be?
There is no set answer. Choose terms you can afford to fund, using your available cash and runway.
Do I need this if most of my sales are cash?
Not much. The number matters when customers pay after you invoice.