Debtor days calculator

As the accountant you will be interested in any amounts due from customers that are well past due in your debtors’ ageing report. However, the board prefer to look at key figures. One of these is debtor days, i.e. how long it takes your customers to pay.

Base numbers

Quite naturally you start your analysis of trade debtors by establishing the total sales ledger control account balance at month-end. Comparing this with past month-end levels will give you a rough idea of how you are doing in terms of managing overall debt, but it won’t tell you the average time it is taking your debtors to pay. Are they sticking to your terms of business. This is where a Debtors Days Calculator can help.

The debtors’ ledger module within your accounts package will include a number of basic features. In addition to transaction and customer level enquiries, these include cash receipt reports, invoicing reports, credit note reports, debtor ageing reports and the ability to generate customer statements. Some packages also include the facility to monitor customer debt levels against agreed credit limits. These reports can easily provide you with the basic numbers needed for our debtor days calculator.

Included in total sales ledger control account balance are sales from this month (let’s say not due for 30 days) and the residual of previous months’ sales not yet paid. For example, you could have a total debtors days figure of 64 days at the end of July. This in turn is made up of 31 days for the month of July and 30 for the month of June, leaving only three days’ worth of older uncollected debt.

Generally, fewer debtor days are better, but there’s no set benchmark - it depends on your industry. The board will probably like to compare a company’s debtor days over, say, this month, last month and last year, to ensure that they haven’t significantly increased, as this could be an indication of weakness in the credit control process.