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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
-
Do you qualify for the Winter Fuel Payment if you live abroad?The Winter Fuel Payment will be means tested for expats living in Europe, in line with the new rules impacting those in the UK. But a quirk in the system means not all countries are eligible.
-
What the Employment Rights Bill means for your jobNew workplace reforms are set to give employees new rights to benefits and flexible working
