Debtor Days Ratio

What is the Debtor Days Ratio?

The Debtor Days ratio shows the average number of days your customers are taking to pay you. It is calculated by dividing debtors by average daily sales. It is sometimes referred to as days’ sales in accounts receivable.

What is the Formula for Debtor Days?

Debtor Days = Debtors / Average daily sales = Debtors / (Sales / 365)
  • Debtors is given in the Balance Sheet and is normally under the heading trade debtors.
  • Sales is found in the Profit and Loss Account.

How is Debtor Days Calculated in Practice?

Example 1

As 365 days (1 year) is used in the formula you must use the annual sales figure for sales.

Annual sales 200,000 and year end debtors 20,000 then
Debtors Days Ratio = 20,000 / (200,000 / 365) = 36.5 days
It takes the business on average 36.5 days to collect debts from customers.

Example 2

If you are using sales for a different period then replace the 365 with the number of days in the management accounting period.

If using monthly (30 days) management accounts
Monthly sales 18,000 and month end debtors 19,000 then
Debtors Days Ratio = 19,000 / (18,000 / 30) = 31.7 days

What does the Debtor Days Ratio Show?

If your debtor days are increasing beyond your normal trading terms it indicates that the business is not collecting debts from customers as efficiently as it should be, or perhaps terms are being extended to boost sales. For example if your normal terms are 30 days and your Debtor Days ratio is 60 days the business on average is taking twice as long to collect debts as it should do.

Any upward trend in the Debtor Days ratio means that an increasing amount of cash (possibly from overdrafts) is needed to finance the business, this can be a major problem for an expanding businesses.

Useful Tips for Using Debtor Days

  • The Debtor Days should be the same as your Terms of Trade with customers.
  • A cash business should have a much lower Debtor Days figure than a non-cash business.
  • Typical ranges for Debtor Days for a non-cash business would be 30-60 days.
Debtor Days Ratio November 6th, 2016Team

You May Also Like


Related pages


what is the normal balance for accounts receivablewhat is contra revenueannuity discount rategeneral ledger layoutincome statement projection templatejournal adjusting entriesmanual bookkeeping templatewhy do we prepare bank reconciliation statementbeginning merchandise inventory formulacalculating times interest earnedreturn on capital employed calculationaccrued salaries payabledouble entry bookkeeping pdfwhat are fixed overheadssalary received journal entryhow to prepare for accounts payable interviewunearned income entrylist of accounting entriesexcell irrcreditors days formulasample bookkeeping testpresent value of an annuity chartgearing ratio calculatorlower of cost and net realizable valuewhat does cogs meancalculate total variable costhow to calculate annuity dueusing excel for bookkeepinghow to calculate effective annual rateinventory systems accountingexamples of marketable securities on a balance sheetoperating lease treatmentobjective of bookkeepinggaap chart of accountsreceivable turnover formulamarkup vs margin formulaformula for annuity factordouble bookkeepingstock turnover ratio formula in daystransaction analysis accountingincome statements examplesjournal entry for prepaymentdouble entry for finance leaseissuance of common stock journal entrypv calculator excelcalculating depreciation with salvage valuebalancing quizpresent value of annuity due tablepv of annuitycash ledger exampledefinition of gearing ratioconsigned inventorydeferred revenue expenditure meaningannuity due present valuecontribution margin at the break-even pointdefine capacity cushionobsolescence of inventoryeconomic entity assumption accountingpv of perpetuity formulacomparative and common size balance sheetformula to calculate gpcost accounting variancesaccounting rules for journal entriesaverage accounts receivablespercentage markup formulainterest expense journal entrygoods on consignment definitionaccounts receivable reconciliation templatebond premium amortization schedulestandard costing journal entriesfixed asset turnover ratio industry averagepetty cash fund balance sheetexamples of owner's equity