1. What is Debtor Days?

Debtor Days indicates the average time it takes for a company to convert its accounts receivable into cash. It's a key financial metric that measures the efficiency of a company's credit and collection policies.

2. How Does the Calculator Work?

The calculator uses the Debtor Days formula:

Where:

• \( AR \) — Accounts Receivable (total amount owed by customers)
• \( CS \) — Credit Sales (total revenue from credit sales)
• \( 365 \) — Number of days in a year

Explanation: The formula calculates how many days it takes on average for a company to collect payment from its credit customers.

3. Importance of Debtor Days Calculation

Details: Monitoring debtor days helps businesses manage cash flow effectively, identify collection issues early, and maintain healthy working capital. A lower number indicates faster collection times, while higher numbers may signal potential cash flow problems.

4. Using the Calculator

Tips: Enter Accounts Receivable and Credit Sales amounts in dollars. Both values must be positive numbers, with Credit Sales greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Debtor Days ratio?
A: Ideal debtor days vary by industry, but generally, lower is better. Compare against industry averages and your company's credit terms.

Q2: How often should Debtor Days be calculated?
A: It should be monitored regularly, typically monthly or quarterly, to track collection efficiency trends.

Q3: What if Credit Sales is zero?
A: The calculation requires Credit Sales to be greater than zero. If no credit sales occurred, the metric is not applicable for that period.

Q4: How can companies reduce their Debtor Days?
A: Strategies include offering early payment discounts, implementing stricter credit policies, improving invoicing processes, and following up on overdue accounts promptly.

Q5: Does this calculation include cash sales?
A: No, Debtor Days specifically measures collection efficiency for credit sales only. Cash sales are collected immediately and don't affect this metric.