How to calculate debtor days
The debtor days formula is: (Trade Debtors / Annual Sales) x 365. For a more precise calculation using a shorter period, substitute the relevant turnover figure: (Trade Debtors / Monthly Sales) x 30, for example.
- Formula: (Trade Debtors / Annual Revenue) x 365
- Example: £200,000 debtors / £1,200,000 annual revenue x 365 = 60.8 days
- This means customers are, on average, paying 61 days after invoicing
What influences your debtor days?
The payment terms you set and enforce are the primary driver. If you invoice on 30-day terms but your customers regularly pay on 45 or 60 days, your debtor days will be higher than your terms suggest. Weak credit control, lack of follow-up, and poor invoice quality (missing information that delays processing) all contribute to high debtor days.
The sectors your customers operate in also matter. Large retailers, NHS trusts and public sector bodies often pay on longer terms, which structurally inflates debtor days for their suppliers regardless of how well those suppliers chase payment.
Sector benchmarks
Debtor days vary considerably by sector. Construction and professional services tend to have higher debtor days than retail or hospitality. A benchmark of 30 to 45 days is considered good for most B2B businesses. Above 60 days indicates collections are underperforming or payment terms are too generous.
How to reduce debtor days
- Tighten payment terms: reduce from 60 to 30 days where commercially viable
- Invoice promptly: same-day or next-day invoicing after work is completed
- Improve invoice quality: ensure all required information is included to avoid processing delays
- Implement a structured chasing process with clear escalation steps
- Consider invoice finance to decouple your cash flow from customer payment behaviour entirely
Worked Example
A professional services firm with £900,000 annual turnover and £110,000 in trade debtors at year end.
- Debtor days = (£110,000 / £900,000) x 365
- = 0.1222 x 365
- = 44.6 days
At 44.6 days, the firm's debtor days are broadly in line with 30-day payment terms, suggesting customers are generally paying within the agreed period with some slippage. A target of 35 days would improve cash flow by freeing up approximately £25,000 in cash.
Frequently Asked Questions
What is a good debtor days figure?
For most B2B businesses, debtor days below 45 is considered acceptable. Below 30 is excellent. Above 60 suggests collections are underperforming or payment terms are too generous for the sector.
How does invoice finance affect debtor days?
Invoice finance advances cash before your customer pays, so it effectively removes the cash flow impact of high debtor days. However, your reported debtor days will remain the same unless your actual collections improve.