Debtor and creditor days

Investors looking for an indication of a firm's commercial power may look at how fast it pays customers and suppliers.

Investors looking for an indication of a firm's commercial power may look at how fast it pays customers and suppliers.

Enter debtor and creditor days. Say a firm has sales of £500m, opening balance-sheet debtors (receivables) of £50m and closing debtors of £60m. The average is £55m. Expressed in days, that's (£55m/£500m) x 365, or about 40 days. So on average customers pay up after 40 days.

Now say cost of sales is £300m, opening creditors (trade payables) were £60m and closing creditors (again from the balance sheet) £80m. Average creditors are £70m and creditor days are therefore (£70m/£300m) x 365, or 85 days. So it takes the firm roughly 85 days to pay suppliers after receiving goods on credit.

A firm with a strong bargaining position will not allow customers to take much credit (low debtor days) but will take its time paying suppliers (high creditor days). Generally, the bigger and more dominant the firm, the easier this is.

Most Popular

Is it cheaper to leave the heating on low all day?
Personal finance

Is it cheaper to leave the heating on low all day?

The weather is getting colder and energy bills are rising, but is it really cheaper to leave the heating on low all day or should you only turn it on …
1 Dec 2022
Radiator vs electric heater – which is cheaper?
Personal finance

Radiator vs electric heater – which is cheaper?

We compare the costs, pros and cons of radiators and electric heaters and see which one will help keep your energy bill as low as possible.
28 Nov 2022
State pension errors – why tens of thousands of mothers could be missing out on millions in state pension payments
State pensions

State pension errors – why tens of thousands of mothers could be missing out on millions in state pension payments

LCP launches Mothers Missing Millions campaign amid DWP state pension errors.
3 Dec 2022